Tuesday 17 July 2018

Mortgage lending rules remain largely unchanged - but slight adjustments to exemption levels

Most buyers will still be restricted to borrowing no more than three-and-a-half times their income Stock image
Most buyers will still be restricted to borrowing no more than three-and-a-half times their income Stock image

Charlie Weston Personal Finance Editor

The Central Bank has left mortgage lending restrictions largely unchanged.

But it has made a slight adjustment to the level of exemptions to the lending limits.

Most buyers will still be restricted to borrowing no more than three-and-a-half times their income.

First-time buyers will still be required to have a deposit of 10pc of the property’s value, with a 20pc deposit needed by second and subsequent buyers.

But there are exemptions to the rules.

Up to now banks were able to allow 20pc of all borrowers an exemption from the income limits.

This exemption did not distinguish between new and second-time buyers.

The exemptions allow the likes of a newly qualified doctors to avoid the income limit, as their income is expected to rise.

Now the regulator has said that banks will only be allowed to exempt 10pc of second-time buyers from the income-limit rules.

However, banks will be able to exempt up to 20pc of first-time buyers from the rules, if they qualify for an exemption.

Central Bank governor Philip Lane said this reflected the reality of lending at the moment, where new buyers often have the potential to earn more as their careers progress.

This means they get an exemption more often than a second-time buyer.

Prof Lane said: “The larger allowance for above-ceiling lending to first-time buyers compared to second and subsequent buyers reflects the different characteristics of these two groups.

“In particular, first-time buyers are typically younger, with current income levels lower relative to expected future income levels”

He added that the lending limits remain sufficiently flexible to allow the Central Bank to respond to risky lending developments, should they arise in either buyer group.

It is not expected that the change to the exemption limits will lead to higher or lower overall bank lending.

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