The Central Bank of Ireland has moved to ease its mortgage lending rules for short-term bridging loans aimed at allowing older homeowners downsize.
The regulator said it will exempt homeowners taking on a bridging loan to buy a new home, prior to the sale of an existing property, from the loan-to-income (LTI) requirement that generally applies to owner-occupier mortgages. However, a loan-to-value limit will continue to apply.
The amendment recognises that bridging finance products are a feature of the evolving Irish mortgage market and ensures that the regulatory framework adapts appropriately to continue to support market functioning without compromising lending standards or resilience of borrowers and lenders in the mortgage market, the Central Bank said.
Within the measures, a principal home bridging loan is a short-term loan – with a maximum term of 18 months – that facilitates existing homeowners to purchase a new principal home before completing the sale of their current property. Unlike standard mortgages, these loans are repaid from the proceeds of the property sale rather than from regular income.
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In late 2024, ICS Mortgages became the first Irish mortgage lender to introduce a bridging loan product since the financial crash. Bank of Ireland launched a pilot bridging loan product aimed at people trading down earlier this year. The costs of such loans are much higher than standard mortgages, due to their short-term nature.
“This targeted amendment reflects our commitment to ensuring the mortgage measures remain fit for purpose as the market evolves,” said Vasileios Madouros, a deputy governor of the Central Bank. “Bridging loans serve a purpose in helping homeowners move between properties, and the LTI limit is less relevant for products where repayment comes from asset sale proceeds rather than regular income.”
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The hope is that the development will help increase activity in the home sales market.
Two-thirds of Irish homes are underoccupied, the Economic and Social Research Institute (ESRI) said in a report in 2024. That’s the third highest in the European Union and double the average.
However, the ESRI also noted that that there was a strong preference for people in Ireland to live in houses rather than apartments.
The current mortgage regulations allow most first-time borrowers to take out loans of up to 4 times their gross annual salary, while the limit for second and subsequent buyers is 3.5 times. They also permit a maximum loan-to-value of 90 per cent for a principal home and 70 per cent for buy-to-let properties.
Lenders may allocate up to 15 per cent of the value of owner-occupier lending to loans that exceed the limits. The exemption rate for buy-to-let business stands at 10 per cent.
Minister for Finance Simon Harris said the Central Bank move was an “important measure” in efforts to increase housing choice for older people.
“This change to the lending rules is in line with the Government’s housing plan commitment on the availability of bridging finance to support rightsizing,” he said.
ICS’s bridging loans product for owner-occupiers, with an LTV of up to 70 per cent, currently carried a variable annual interest rate of 10 per cent and an one-off arrangement fee of 1 per cent.
Bank of Ireland’s trade-down loan has a 7 per cent variable rate.
The average rate for a new Irish mortgage stood at 3.51 per cent in February, according to the latest Central Bank data.
A spokesman for AIB, the second-biggest player in the Irish mortgage market, said it “noted” the mortgage measures amendment.
“While to date we have not seen significant demand for specific mortgage bridging products for customers who are trading down, we do keep our product offerings under constant review,” he said.
“Where customers are involved in a closing process between two properties we work closely with them and their solicitor to ensure a streamlined drawdown process to enable such sales to close.”
