Wednesday 18 September 2019

One in five mortgage borrowers granted exemptions to strict Central Bank lending rules

The Central Bank in Dublin. Photo: Jason Alden/Bloomberg
The Central Bank in Dublin. Photo: Jason Alden/Bloomberg
Charlie Weston

Charlie Weston

ONE in five mortgage borrowers got an exemption last year from strict Central Bank lending rules.

The exemptions were mainly taken up by first-time buyers, according to a new report.

People who get an opt-out from the lending limits tend to be from Dublin and have earnings in the lower to middle-income range.

Single applicants are also more likely to get one of the exemptions the banks are able to grant, the study by the Central Bank found.

The findings suggest the allowances system was helping purchasers in more expensive areas, particularly those on lower incomes and with only one income source, regulators said.

Lending limits were introduced by the Central Bank in 2015 and are mandatory for all mortgage lenders.

Lending is limited to three-and-a-half times a buyer’s income, with first-time buyers having to come up with a deposit that represents 10pc of the property’s value.

Second and subsequent buyers have to have a 20pc deposit.

But banks are allowed to exceed these limits for a set number of mortgages they issue.

Some 20pc of mortgages issued to first-time buyers can exceed the income limit, and 5pc of the mortgages issued to new borrowers can exceed the deposit rule.

The study by the Central Bank found that just a third of borrowers that got an exemption to  borrow more than three-and-a-half times their income back in 2015.

But house price rises meant that by last year almost half of those getting an income exemption were borrowing four or more times their income.

The research found that only small number of borrowers got both an income and a deposit exception.

The Central Bank said that lenders were attempting to maximise the use of exceptions by limiting borrowers to exceptions in one category.

Outside of Dublin, borrowers with similar income profiles to those without exceptions are using an exception to expand the property valuation they can access through taking on a larger loan size.

The Central Bank said the rules were largely successful in allowing borrowers to overcome credit constraints.

Previous research by the Central Banks, issued last month, found that desperate first-time buyers who qualify for exemptions were being turned down as banks were not using their full quotas for lending outside the limits.

Analysts blame the complexity of the rules, which makes it difficult for banks to know how many exemptions will be used.

The Central Bank estimated that banks may have only issued income exemptions to 11pc of first-time buyers in the second half of last year, half of what they could have issued. This means thousands of potential new buyers could be missing out on getting a mortgage.

Brokers Ireland said the exemptions provide a “lifeline” for many aspiring home owners.

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