Sunday 17 December 2017

Mortgage squeeze as banks shut off option to exceed lending limits

First-time buyers are facing extra pressure
First-time buyers are facing extra pressure
Charlie Weston

Charlie Weston

More banks are closing off the option of allowing borrowers to get an exemption from Central Bank lending rules.

The move is set to put further pressure on first-time buyers struggling to get a foothold in a market where prices are shooting up by 12pc a year.

Ulster Bank has joined AIB's EBS and Haven in refusing to offer stretched borrowers the option of exceeding strict lending limits.

The Central Bank has told banks to restrict the amount they lend out based on applicants' income and the amount they have saved for a deposit.

Borrowers can only take out a loan that is three-and-a-half times, or less, their income. But a bank's loan book can exceed this limit for 15pc of its loan book.

First-time buyers also have to have a deposit of at least 10pc of the property's value, with second-time buyers having an equity or a deposit of at least 20pc of the property's value. This is known as the loan-to-value restriction.

Banks can exceed the loan-to-value restrictions for 20pc of their loan book in a year.

However, mortgage experts said it was proving impossible for banks to work out if they would end the year exceeding the exemptions limit.

Chairman of the Irish Brokers Association's mortgage committee Michael Dowling said most borrowers were putting in place multiple loan approvals before searching for a property.

This meant banks risked exceeding their exemptions quota.

"The problem is that people are making multiple applications to different lenders for mortgages. But you can only draw down one mortgage. This means banks can't work out when they are approving mortgage applications if they will end up above the exemption limits," Mr Dowling said.

Runaway prices mean first-time buyers were seeking exemptions on the income rules.

Movers were more likely to seek an exemption on the loan-to-value rules, as they do not have enough equity in their homes when trading up.

Mr Dowling said AIB's EBS and Haven, and now Ulster Bank, would no longer offer exemptions this year. Ulster Bank insisted it was a temporary move.

Meanwhile, Ulster Bank is launching one of the lowest fixed mortgage rates in the market for those borrowing more than €300,000.

The new four-year rate of 2.6pc is set to be the lowest in the market for such a sum, and will be available to new and existing borrowers.

The bank said only those with a loan-to-value of up to 80pc would qualify for the rate.

Expectations in the money markets are that European interest rates are likely to start rising from next year.

The new Ulster Bank rate will be on offer for new, existing and switcher customers from Tuesday week. But it will only be available for three months.

Ulster Bank does not currently offer a four-year fixed rate.

The move may tempt other banks to cut their lending costs.

The latest cut comes just months after Ulster Bank reduced a range of its fixed rates for new and existing customers. That move saw it offer a three-year fixed rate of 2.9pc for those whose loan is 60pc or less than the value of the property.

Irish Independent

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