Change lending rules to help second-time buyers, brokers say

Umbrella group says rules unfairly penalise families who bought during boom

Mortgage brokers have called on the Central Bank to tweak the mortgage lending rules in favour of second-time buyers.

The Association of Irish Mortgage Advisors (AIMA) said while the rules have encouraged more prudence in borrowers and lenders, they unfairly penalise families who bought during the boom and now are struggling to find the 20 per cent deposit needed to move to bigger properties.

"Each year, our members meet thousands of couples in their late 30s and 40s with combined incomes of €80,000 to €150,000, who now have one, two, or even three children and are looking to move on from their apartment or small house to something more appropriate," AIMA chairman Trevor Grant said.

“But we have to turn away as many as we help because, while most of these applicants could easily qualify for the bigger repayments, they don’t have the €80,000 plus in equity or savings as stipulated by the Central Bank’s current rules,” he said.


“These second-time buyers also do not have access to the 5 per cent Help-to-Buy scheme bonus – this creates an uneven and unfair bias towards first-time buyers which I believe is unintended but still very real,” he said.

The Central Bank is set to complete its annual review of the mortgage rules, which limit what banks can lend to borrowers’ incomes and the size of initial deposits, amid concern they may be curtailing people from buying affordable homes in Dublin.

Housing bubble

The rules, which came in in 2014 to prevent another credit-fuelled housing bubble, have been linked to a slowdown in transactions and price growth.

They stipulate that second and subsequent buyers need to have a minimum deposit of 20 per cent before they can get a mortgage.

Mr Grant said a first-time buyer looking to purchase a new home for €400,000 and eligible for the full €20,000 Help-to-Buy rebate, will need a €20,000 deposit, while a second-time buyer looking to buy that same property would require €80,000 deposit.

“The ripple effect of this is that these homeowners cannot vacate these properties, so the people who are actually looking for smaller, more affordable starter homes and apartments are unable to access them,” he said.

The group want the current 20 per cent deposit requirement to be amended to 20 per cent equity/cash combined, or 10 per cent cash deposit “for those who can demonstrate that they have little or no equity in their existing home.”

Exemption limits

It also argued that mortgage lending exemption limits should be managed on a rolling basis and not an annual one to ensure greater equity of distribution.

Lenders have the freedom to make a limited amount of exceptions to the mortgage limits.

“The process for securing exemptions is currently unworkable and not fit for purpose,” Mr Grant said

“ Exemptions are readily available at the start of the year but become increasingly difficult to obtain later in the year as lenders fear that they could be in breach if too many potential borrowers exercise the exemptions they currently hold,” he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times