Business Irish

Sunday 21 January 2018

Third of first-time buyers seek relaxation of Central Bank's rules on home loans

Central Bank chief Philip Lane said the rules could be changed. Photo: Frank Mc Grath
Central Bank chief Philip Lane said the rules could be changed. Photo: Frank Mc Grath
Sarah McCabe

Sarah McCabe

Around one third of first-time buyers is trying to get around the Central Bank's new mortgage lending rules, the Sunday Independent understands.

They are seeking exemptions to the rules, with most looking for a way out of lending limits linked to their income, according to a group of mortgage brokers and at least one bank.

The Central Bank limits the amount a bank can provide in new lending to 3.5 times a first-time buyer's income (the loan-to-income restriction) and also sets limits on how much the buyer must stump up for a deposit (the loan-to-value restriction).

For first-timers buying principal dwellings, banks can lend 90pc on properties valued at €220,000 or less, and 80pc on any excess value over this amount.

Non-first-time buyers are subject to a limit of 80pc loan-to-value on the total purchase price of a property. Mortgages for buy-to-lets have different restrictions.

The rules have been blamed for limiting banks' ability to lend and for trapping people in the expensive rental market, at a time when rents are continually rising and there is a shortage of properties to let and buy.

Some exceptions are available. Banks are permitted by the regulator to offer exemptions on the loan-to-value rule for up to 15pc of lending for primary dwelling purposes.

They are also permitted to offer exemptions on the loan-to-income rule for up to 20pc of the value of all housing loans for primary dwelling purposes.

Only one type of exception can be granted per buyer, not both.

"First-time buyers are seeking more exceptions to the loan-to-income limit than the deposit rule," said home loans expert Michael Dowling, who chairs the mortgage committee at the Irish Brokers' Association.

"Take a house priced at €300,000. Under the new rules, a first-time buyer can actually borrow up to 87pc of the purchase price, so the deposit would work out at around €39,000 which for a couple is not completely out of reach.

"But for two people on an average industrial wage of €36,000, making a combined €72,000, the most they can borrow due to the loan-to-income rule is €252,000. That's nearly €50,000 in the difference, a bigger challenge."

Michael Quinn, head of mortgage sourcing platform Mortgage Brain, described it as an "exceptions-driven mortgage market".

A study of 200 mortgage brokers by his organisation last year found that it is the income rule which provides a 'killer blow' to first-time buyers and not the deposits, as previously expected by many analysts.

The clampdown on lending is contributing to a clamour for higher pay, which could escalate into a summer of industrial unrest.

Starting salaries for many State workers, which were slashed by up to 10pc during the crisis years, mean they have no chance of buying a home.

Clerical assistants are working for pay rates that are more than €8,000 lower than colleagues who had been recruited before them.

Gardai earn €23,750 on attestation, and €25,726 in year one. A full-time firefighter in Dublin earns €22,976 a year, while a newly hired teacher's pay is €31,009.

The average house price nationally is €191,194 and €358,333 in Dublin.

The Central Bank recently said it would invite public submissions on its annual review of the rules.

Central Bank governor Philip Lane said that while the rules are intended to be a permanent feature, the "calibration of these rules can be tightened, loosened or left unchanged".

Sunday Indo Business

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