The Central Bank has announced its relaxing mortgage-lending limits to allow first-time property buyers to borrow up to four times their income, it said on Wednesday.
It comes following a review of lending rules designed to prevent a lending bubble.
First-time buyers can now borrow four times their gross income instead of 3.5 times and second time buyers only need a 10% deposit whereas they were required up to now to save 20%.
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The new rules will come into effect from January 1, 2023.
The current mortgage measures were introduced in 2015 to safeguard economic and financial stability, and have been changed for the first time in seven years.
The move is in an effort to widen accessibility in the wake of a shortage of supply and record prices, and an ongoing housing crisis.
So how do the new rules affect buyers?
A single person and first-time buyer earning €40,000, under the old rule could borrow €140,000, and can now borrow €160,000. A couple earning €65,000between them can now borrow €260,000.
A single person earning €30,000 can now borrow €120,000.
A couple earning €80,000 can borrow €280,000, under the existing rules.
With this change, that figure will jump to €320,000.
The bank has also decided to broaden its definition of a first-time buyer to include borrowers who are separated or divorced or have undergone insolvency or bankruptcy and no longer have an interest in their previous property.
Lenders will continue to be able to provide a proportion of lending above the limits.
Despite the borrowing limits increasing for first time buyers, the limits will still be capping the quantity of a mortgage to 90% of a property's value for first time buyers.
If you’re a second time buyer, this will be rising from 80% to 90% meaning second-time buers will only be required to save a 10% deposit instead of 20% come January 1.
The Central Bank also said today that the use of allowances - which allows lenders to issue a certain amount of lending over the limits - has been important to provide flexibility to cater for individual circumstances.
Mortgage lenders will have allowances to permit 15% of their lending above these limits, RTÉ reports.
Central Bank of Ireland, Director of Financial Stability, Vasilieios Madouros, said: “Over the past 18 months, we conducted a comprehensive review of a mortgage measures framework, to ensure the measures remain fit for purpose into the future,
“We looked at the experience of other countries with similar measures, we engaged with a wide range of stakeholders both at home and abroad, most importantly, we listened to, and learned from the views shared by the public.”
“The public that ultimately these measures serve.”
“Our review has reaffirmed the benefits of the measures, through fostering a more sustainable mortgage market.”
The bank also raised the loan-to-value limit for those buying for the second time to 90 per cent from 80 per cent, putting them in line with current limits for first-time buyers.
A number of changes are being made to the criteria required for a borrower to be considered a FTB for the purposes of the mortgage measures:
From a “fresh start” perspective, borrowers who are divorced or separated or have undergone bankruptcy or insolvency may be considered FTBs for the mortgage measures (where they no longer have an interest in the previous property);
FTBs who get a top-up loan or re-mortgage with an increase in the principal may be considered “first time”, provided the property remains their primary home
Publishing the review, Governor of the Central Bank of Ireland Gabriel Makhlouf said: “The mortgage measures are essential in our mission to serve the public by maintaining the financial stability of the economy and households as a whole, so it is good policy practice to review these given the broader changes in the economy. While not always immediately visible to people in their daily lives, the benefits of the measures are long-term.
“The level of engagement during the review from public and stakeholders was extremely welcome and provided us with a range of insights on the measures and the broader mortgage market.
"Our public engagement showed strong support for mortgage measures – over 70% of people who responded to our online survey believed that these types of measures have a permanent role to play in mortgage market.
At the same time, it is clear that affordability and access to housing are key challenges facing many people in Ireland. At the core of these challenges is the need to increase the supply of housing."
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