Thursday 29 September 2016

Rules dictate size of loans and deposits

Published 28/04/2016 | 02:30

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The Central Bank's rules restrict how much people can borrow by dictating the size of the deposit they have to have and by limiting the size of mortgage based on their income.

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The loan-to-income ratio sets the maximum amount of money people are allowed to borrow when buying a home.

The rules state that you can't borrow more than three-and-a-half times gross earnings in a year when buying a home.

The Central Bank's rules also set out the proportion of a property's price that must be provided up front.

If you're a first-time buyer, you have to have a deposit worth 10pc of the value of the property for the first €220,000 of borrowings. So, if you're buying a house for €220,000, you have to provide €22,000 up front and you can borrow the rest.

Second-time buyers need a deposit of 20pc of the value of the property for all amounts borrowed.

This means a house priced at €350,000 would require a deposit of €70,000 under the rules for someone trading up.

The income limit and the deposit rules do not apply to switchers, as long as they are not borrowing extra money. And the rules don't apply to those in negative equity, and those in arrears who are restructuring a mortgage.

Banks are also allowed to make some exceptions, and can issue up to 15pc of the value of mortgages that are outside the deposit rules, and 20pc that exceed the income limit rules.

Irish Independent

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