Wednesday 13 December 2017

Building surge after lending curb U-turn

First-time buyers can borrow any amount with just 10pc deposit; Welcome for Central Bank’s rule change – but warning on inflation

(L to R) Cyril Roux Deputy Governor (financial regulation) Central Bank Sharon Donnery Deputy Governor Central Banking Philip R Lane Governor Cenral Bank during the announcement of the Outcome of Review of Mortgages at the Central Bank in Dublin's City Centre. Photo: Gareth Chaney Collins
(L to R) Cyril Roux Deputy Governor (financial regulation) Central Bank Sharon Donnery Deputy Governor Central Banking Philip R Lane Governor Cenral Bank during the announcement of the Outcome of Review of Mortgages at the Central Bank in Dublin's City Centre. Photo: Gareth Chaney Collins
Charlie Weston

Charlie Weston

The Central Bank has made a dramatic change to its mortgage lending rules in a move that is expected to lead to a huge increase in home building.

However, there are also fears that the loosening of the lending limits will lead to even bigger property price rises.

First-time buyers will now be able to borrow any amount with a deposit of 10pc if they meet other lending criteria.

Up to now, new borrowers could have been approved for a mortgage with a deposit of 10pc for borrowings up to €220,000. They needed a 20pc deposit for all amounts over that.

Currently a first-time buyer purchasing a home for €300,000 needs a deposit of €38,000. From January, the new buyer should qualify for mortgage approval with a deposit of €30,000. And if the buyer qualifies for the Government's Help-to-Buy scheme for new homes, they will get a tax rebate of €15,000.

This means they will be able to buy with an effective deposit of 95pc of the property's value.

However, the Central Bank also said it was restricting the exemptions to the deposit rules to just 5pc of first-time-buyer mortgages issued by banks - down from 15pc. Second-time buyers, such as movers, will still need to find a 20pc deposit.

The altering of the rules has been welcomed by the Housing Agency, the Construction Industry Federation and estate agents. It is expected the move will encourage developers to build more new homes as there is now a greater market of potential buyers.

However, Fianna Fáil warned of a "considerable risk" of house-price inflation when the revised Central Bank mortgage rules are combined with the impact of the Help-to-Buy scheme.

The party's finance spokesman, Michael McGrath, cautiously welcomed the changes that will see first-time buyers being able to secure a mortgage with lower deposits, but said house prices would have to be "very closely monitored".

Irish Independent

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