Will the Central Bank make it any easier to get a mortgage?

The Central Bank is on Wednesday expected to announce some changes to mortgage lending rules introduced in February 2015. After conducting the first full review, the bank will detail its response to the many submissions it has received; what it plans to do in response to these; and, more importantly, how it views market conditions. Broadly, it is expected to stick to the rules, so most people applying for a mortgage will still need to have a 20 per cent deposit (or a bit less for first-time buyers) and will not be able to borrow more than 3.5 times their gross income. However, some additional leeway is expected to be given to first-time buyers.

Here are there questions we can expect the Central Bank to answer on Wednesday:

1. Will the commercial banks be able to lend in excess of the guidelines in more cases?

As it stands, banks can exceed the 20 per cent deposit rules – the so-called loan-to-value requirement – for 15 per cent of the cash value of loans extended, and the loan-to-income ratio in 20 per cent of cases. There are no set rules to qualify for these exemptions – they are at the discretion of the lender. This means, for example, that a borrower with a high income but limited savings to hand might be allowed have a loan of up to 90 per cent of the value of their property.

The Irish Times reported last weekend that one measure under consideration was to increase the 15 per cent limit for loan-to-value exemptions, perhaps to somewhere around 20 per cent. A Central Bank study showed that in the first half of this year only 11 per cent of bank mortgage lending books exceeded the loan-to-value limit, meaning banks are not using their full capacity. The banks complain that the restriction is hard to police, as it is hard to predict the pace of mortgage approval drawdowns, and some are never drawn down at all. Some leeway here would be of most benefit to those on higher incomes with strong earnings records and a good credit histories, who have not saved the full deposit. More of these type of borrowers would in future qualify for an exemption, though this would still require a deposit of at least 10 per cent.

2. Will the key €220,000 cash limit be changed?

Currently, first-time buyers need a deposit of 10 per cent for a property of up to €220,000 and 20 per cent of the excess for anything higher. Non first-time buyers of homes require 20 per cent and it is 30 per cent for buy-to-let purchasers.

It is important to look at how the rules work for first-time buyers. The 10 per cent deposit applies on the amount up to €220,000 and the 20 per cent then applies to the remaining value of the property purchased. So the required deposit for anything above the limit is €22,000 plus 20 per cent of the excess of the house price over €220,000.

There is speculation that the €220,000 figure may be increased. A Central Bank study showed that the average price paid by a first-time buyer in the first half of the year was just over €244,000, though it is not clear whether the bank would favour extending the requirement to hold a 10 per cent deposit to this level. Either way, an increase in the €220,000 limit would reduce the deposit requirement for all first-time buyers, but have no impact on non first-time buyers.

3. Will there be other tweaks?

There had been calls on the bank to allow greater leeway in cases where borrowers are paying rent – which makes it challenging to save. However, the introduction of the Government help-to-buy scheme in the budget means any change here is most unlikely. This scheme allows first-time-buyers to claim an income tax rebate to help towards their purchase subject to certain restrictions. Other tweaks may also be considered by the bank, but the message is likely to be that, in general, the rules are here to stay.