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Sunday 25 August 2019

First-time buyers face being turned away as exemptions 'to run out in weeks'


First-time buyers (Stock photo)
First-time buyers (Stock photo)
Wayne O'Connor

Wayne O'Connor

Borrowers trying to buy a home this year are under increasing pressure to secure mortgages as banks are expected to meet annual caps within weeks.

Exemptions for first-time buyers looking to lend outside of Central Bank rules are likely to run out before the end of the month, according to a leading mortgage expert.

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He has warned that house hunters are already being turned away by lenders because banks have met their annual caps, less than three months into the year.

Central Bank rules allow 20pc of first-time buyers to borrow more than three-and-a-half times their income. The strict rules mean banks cannot breach this cap, despite excessive demand for housing.

Mortgage broker Michael Dowling, of Dowling Financial, said he expects banks will have allocated their loan exemptions by the end of the month.

Banks have not previously allocated all of their exemptions this early but some customers saw their loan-to-income applications turned away in April last year. Many banks had then allocated their 20pc of exemptions by July and August in 2018.

GENEROUS EXEMPTIONS: Central Bank chief Philip Lane. Picture: Collins
GENEROUS EXEMPTIONS: Central Bank chief Philip Lane. Picture: Collins

Mr Dowling said this helps to feed the problem as it leads to an influx of borrowers lodging applications at the start of the year.

"The problem is you never know when a mortgage is going to draw down," he said.

"Banks would have had a number of cases that were expected to draw down last year and they didn't, so they were drawn down this year. When they didn't close [last year] they have an immediate impact on the exemptions this year.

"There is no doubt that there are pressures there, because of such a concentration of people trying to get them and, obviously the best time to get them is at the start of the year when they are available."

The exemptions are highly attractive for first-time buyers as the Central Bank rules mean most borrowers are restricted to a mortgage of 3.5 times their income.

They must also provide a 10pc deposit.

A spokeswoman for the Central Bank said the measures are enforced because it expects lenders "to be satisfied that mortgages are affordable for borrowers for the duration of the life of a loan".

Mr Dowling suggested the best remedy would be to average exemptions over a three-year period but warned against increasing the number of exemptions issued annually.

"There are some who would argue the remedy is to increase the exemption. The corollary is if we open it up, prices are just going to increase if people have access to more money. You have intense competition out there, especially for second-hand properties and people are going to end up paying more only to see the property market getting out of hand."

However, last year the Central Bank governor Philip Lane described the exemptions as "generous" and said banks should be able to operate within the restrictions.

A Central Bank spokeswoman told the Sunday Independent: "The mortgage measures are not designed as a substitute for lenders' responsibilities to assess affordability and lend prudently.

"While the measures place ceilings on the size of mortgages, they do not replace responsible lending standards and the application of suitability requirements by lenders."

His comments come in the wake of a new government report outlining the financial lengths people are willing to go to in order to buy a home.

Research by the Department of Housing and the Department of Finance shows one-third of renters are willing to spend more than half of their future net income on mortgage repayments.

It shows almost nine out every 10 people (86.5pc) would prefer to own their own home. However, it warns of "a poor appreciation of the risks associated with excessive housing costs as a proportion of disposable income".

Sunday Independent

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