Central Bank eases mortgage-lending limits for first-time buyers

The Central Bank is to ease mortgage-lending limits to allow first-time property buyers to borrow up to four times their income, it said on Wednesday following a review of lending rules designed to prevent a lending bubble.

The Central Bank introduced limits in 2015, capping how much banks can lend for the purchase of a home relative to its value and the borrower's income in a bid to prevent a repeat of excessive lending that devastated the economy over a decade ago.

Today, the Central Bank of Ireland announces targeted changes to lending rules following its overarching review of the mortgage measures framework. https://t.co/d773mOOXpr pic.twitter.com/DbmNwMkcoL

— Central Bank of Ireland (@centralbank_ie) October 19, 2022

Currently, lenders can only offer loans up to 3.5 times the income of first-time buyers. That is set to rise to four times from January, the bank said.

The 3.5 times limit will remain for other buyers.

The bank also raised the loan-to-value limit for those buying for the second time to 90 per cent from 80 per cent, putting them in line with current limits for first-time buyers.

No change has been made for buy-to-let property purchases, for which a 30 per cent deposit will still be required.

The Central Bank also confirmed the number of mortgages permitted to exceed the respective limits will be applied based on borrower type, rather than an individual limit.

As such, 15 per cent of both first-time and subsequent buyer mortgages will be able to exceed the loan-to-value lending limits, while the same will apply to 10 per cent of buy-to-let borrowers.

'Chronic under-supply'

The chair of the Association of Irish Mortgage Advisors, Trevor Grant, welcomed the changes, noting they will make "a considerable difference to many".

"Unfortunately though, we still have a chronic under-supply of property to cater for demand and in a market where there is also a similar under supply of rental properties, this is unacceptable from a consumer and society perspective.

"Therefore, there is a concern that by increasing the multiple at this time it may increase prices until sufficient property supply is delivered," Mr Grant added.

Head of credit at MyMortgage.ie, Joey Sheahan, said the reduction of the deposit required for second or subsequent buyers will be a "much-needed reprieve for the very many second time buyers who simply cannot save the required 20 per cent".

"There were concerns that increasing the limit could push up the price of property, but there are also concerns that many developers are struggling to deliver homes at prices within the current limits and that a significant number had deferred building until the maths made more sense.

"This higher mortgage limit will hopefully encourage these developers to push ahead, increasing both supply and competition, which should actually slow house price inflation," Mr Sheahan said. -Additional reporting by Reuters