Central Bank's mortgage rules squeezing out 'trader-uppers'
Published 05/08/2015 | 02:30
Young families hoping to trade up from apartments or starter homes are being hamstrung by tough new Central Bank lending rules.
New figures show that the number of so-called 'mover' mortgages issued by the main banks has fallen following the introduction of the rules last February.
The number of mortgages issued to second-time buyers has fallen by 700 in the first quarter of the year alone, and there has also been a drop in top-up mortgages being issued.
The news comes after the Central Bank announced last January that non first-time buyers could borrow a maximum of only 80pc of the property price.
Estate agents have warned that existing homeowners are struggling to save the 20pc deposit required to secure a mortgage for a new home, and that this is leading to a slowdown in sales.
It also creates a logjam. If people who own a starter home cannot trade up, then they cannot sell their starter home to a potential first-time buyer.
The new rules mean that on a property costing €300,000, a family must have saved €60,000 for a deposit. All loans are subject to a 3.5-multiple in the loan-to-income ratio.
The rules are actually less restrictive for first-time buyers, who can borrow 90pc of the property value up to €220,000, and 80pc above this limit.
In today's Irish Independent, the Real Estate Alliance warns that people hoping to trade up to a second home should be subject to the same rules as first-time buyers.
An analysis of data from Banking and Payments Federation Ireland (BPFI) also shows that the rules appear to be having an impact.
Statistics on mortgages issued by the main banks show that fewer than 1,800 mover mortgages were issued in the first three month of the year.
This compares with 2,495 issued in the last three months of 2014 and an average of more than 1,900 in each quarter of last year.
Not only are fewer mover mortgages being issued, there has also been a drop in mortgage top-ups approved.
These are typically used to fund home improvements, such as extensions, to provide additional living space.
The number of mortgages issued to first-time buyers has increased slightly, suggesting the rules are having less of an impact on this sector.
Will Coonan from REA Coonan, based in Maynooth, Co Kildare, said the new rules meant it was "very difficult" for people to save the necessary deposit to trade up.
Trader-uppers were finding it increasingly difficult to secure a mortgage in areas of high demand in north Kildare and the Dublin commuter belt.
"The reason prices went up was because there was no supply," he said. "Credit was still very difficult to get your hands on, even before the rules were tightened.
"There is still a big demand for property, but since the new regulations have come into place, it has become harder to secure that mortgage.
"If you're trying to save while spending €1,000 to €1,500 on a mortgage or rent to a landlord, then it's difficult if not impossible to put that level of cash together."
Mr Coonan warned that if lending became too tight, it could also have a knock-on effect on first-time buyers.
Another agent, Barry McDonald from REA McDonald, based in Lucan, Co Dublin, said that properties aimed at first-time buyers, and more expensive homes at the top of the market, were selling.
"We're finding that apart from in isolated incidents, properties costing €325,000 or upwards are proving more difficult to sell. It's the mid-level that we're finding a bit tougher," he said.
"There's no doubt that it co-insides with the new lending rules. A lot of buyers have been curtailed by the onus to come up with 20pc.
"The trader-uppers need houses around €400,000, which needs a deposit of €80,000. The rental market isn't helping, because it's got so high.
"To some degree, we are seeing people who may have bought renting instead.
"While there might be an argument for the new lending rules, it could be tweaked to give that middle-market some relief."
The Real Estate Alliance is proposing that the Central Bank brings second-time buyers into the first-time buyers net, allowing them to provide a 10pc deposit for properties up to a ceiling of €220,000, with a maximum of 80pc available on funding above this level.