What will the new Central Bank mortgage regime mean to you?
Everything you need to know about the rules but were afraid to ask
Under new regulations from the Central Bank, banks must only lend 80 per cent of the value of the property value to owner-occupiers. File Photograph: Tim Ireland/PA Wire
What are the key changes?
The main new rule is that banks must only lend 80 per cent of the value of the property value to owner-occupiers. So in general a 20 per cent deposit will be required. Also, loans will be limited to 3.5 times the borrowers’ income - this can include two incomes in the cases of a joint mortgage application.
For people who are trading up the new rules will require a significantly increased deposit - how this affects them will largely depend on how much they have left after they sell off their existing property and repay the bank.
What about first-time buyers?
Banks will be allowed to lend first-time buyers 90 per cent, up to a value of €220,000 and 80 per cent on the balance. So a first-timer buying for €200,000 will require a €20,000 deposit.
A first-time buyer purchasing for €350,000 will require a deposit of €48,000 - 10 per cent of €220,000 plus 20 per cent on the balance of €130,000. This is higher than the €35,000 they would have needed under the old rules, but below the €70,000 deposit needed if the 20 per cent rule applied across the board.
So the more expensive the house that the first-time buyer is purchasing, the higher percentage deposit they will need. Our €350,000 purchaser will need a deposit of 13.7 per cent, or €47,950. A first-timer buying a €550,000 property would need a deposit of €88,000, or 16 per cent of the house value.
By the way, what is the exact definition of a first-time buyer?
A first time buyer is defined as a borrower to whom no housing loan has ever before been advanced. According to the Central Bank: “Where the borrower under a housing loan is more than one person and one or more of those persons has previously been advanced a housing loan, none of those persons is a first-time buyer.”
Will there be exceptions?
Yes. Banks will be allowed to exceed the loan to value limits in 15 per cent of cases (counted by total loan value). They will be allowed to exceed the 3.5 times income limit in 20 per cent of cases. Banks will have some discretion in applying the rules.
What about buy-to-let investors?
They will require a 30 per cent deposit in almost all cases. Banks will be allowed to deviate from this in only 10 per cent of cases per year, so leeway is limited.
When will the new rules come in?
Minister for Finance, Michael Noonan is expected to trigger the required legislative change in the next few days. According to an information note issued today by the Central Bank,”the limits apply to housing loans, approval in principal for which was received from the lender after the regulations coming into effect, and the housing loan is secured on residential property in the State”.
So if I go in looking for a new mortgage today?
The Central Bank has said that it expects banks to start implementing the new rules immediately, even though technically they do not come into force until the Minister for Finance lays the regulations before the House of the Oireachtas in the next few days.
What if I am already in the process?
If you have mortgage approval in principle based on a full credit assessment - or are further along in the process already - then you will not be covered by the new rules. The Central Bank says that the mortgage approval in principle must be based on the formal process of full assessment - and not just initial indications of an amount from a branch or an online tool.
Do the rules apply to all kinds of mortgage loans?
No. The LTV rules do not apply for people currently in negative equity who are planning to move house. Different guidelines apply to these borrowers who are allowed in some cases to add the outstanding balance after their current home is sold to their new loan. However the availability of these loans is limited. Also, switcher mortgages - where people are moving from one mortgage provider to another - and housing loans for the restructuring of mortgages in arrears or pre-arrears are not in the scope of the regulations.
What about equity release and top-up mortgages?
These will be covered. So if, for example, you want to extend your mortgage to put on an extension, then you will need to have a 20 per cent deposit.
If I have the full deposit and am within the income limits, are the banks obliged to lend me the full amount?
No. Banks have their own credit policies and will also apply these. In some cases they may extend the full amount, but in other cases they will not.