Central Bank to consider ‘step break’ from mortgage rules

Proposal for lower income households comes as part of regulator’s year-long review

The governor of the Central Bank Gabriel Makhlouf: Photograph: Nick Bradshaw

Homebuyers earning less than €60,000 may be offered a “step break”from the Central Bank’s strict mortgage lending rules under a series of changes being considered by the regulator.

As part of a review of the measures, the Central Bank said it would consider a number of suggestions made to it during various listening and engagement events over the past year, including loosening the current loan-to-income (LTI) and loan-to-value (LTV) rates for certain categories of buyers.


It said many participants had highlighted that the current 3.5 LTI limit posed too big a challenge for “those attempting to purchase a home in urban areas, single people, lone parents, average income earners and those who are separated or divorced with a family home and cannot access the mortgage market as first time buyers (FTBs).”

One of the suggestions put forward was the introduction of a “step break”so that those earning up to €60,000 would be able to avail of a 4.5 LTI limit, it said, noting that this could assist lower income households in rural locations.


Another measure under consideration was the use of tiered or targeted measures, which would see LTI/LTV rates vary by location or property type.

This might “ address the issue of affordability particularly in urban areas; and basing the LTI limit on net rather than gross income, with the 3.5 LTI limit being re-calibrated accordingly,” it said.

The Central Bank is conducting a major year-long review of its mortgage lending rules to consider their effectiveness. As part of this, it launched a three-month public consultation process today inviting interested stakeholders to provide feedback.

Over the summer, it conducted an online survey alongside a series of listening events. It said a number of participants had called for the current LTI limits to be increased with some noting that less stricter limits applied in other European countries.

“Participants suggested that borrowers’ ability to repay or a debt-service-to-income (DTSI) be considered as an alternative to a LTI ratio,” it said. “In this regard, it was suggested that the longstanding payment of rent should be considered positively give that rental payments are likely to be equal to, or in excess of the typical mortgage repayment on an average priced house,” it said.

However, the regulator also noted there were concerns expressed about the potential consequences of loosening the rules and whether increasing the LTI limit could fuel further housing demand, resulting in higher house prices, especially in urban areas.


Some 53 per cent of participants in its survey agreed that the mortgage rules had been successful in increasing the resilience of banks and borrowers to negative economic and financial shocks. However, 52 per cent disagreed with the proposition that the measures had been successful in preventing another credit-fuelled house price boom.

The findings comes as figures this week show annual house price inflation rose to a pandemic high of 13.5 per cent in October.

The Central Bank said it would consider the feedback it receives these consultations before considering “the implications for the calibration and implementation of the mortgage measures”. The review is due to be concluded in the second half of 2022.

“The mortgage measures have been - and will continue to be - an integral and permanent feature of the Central Bank’s macroprudential policy framework. Since their introduction, they have played a key role in building resilience of both borrowers and lenders and have guarded against the emergence of an unsustainable, credit-fuelled housing boom,” the Central Bank’s director of financial stability, Vasileios Madouros, said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times