Central Bank squeezes large-loan access for second-time buyers

Regulator opts for status quo and moves to retain most rules

House prices are rising at an annual rate of almost 13%.

House prices are rising at an annual rate of almost 13%.


The Central Bank has moved to tighten second-time home buyers’ access to large loans as property prices continue to rebound at pace from the financial crisis.

The regulator decided on Tuesday to retain most elements of existing mortgage-cap rules, though it tweaked a measure to restrict the extent to which second-time and subsequent buyers (SSB) can breach a key loan-to-income cap.

While up to 20 per cent of new mortgage lending for first-time buyers can continue to be above the 3½ times loan-to-income limit, only 10 per cent of SSBs can breach this level from January, said the Central Bank.

Central Bank governor Philip Lane said banks are lending along these lines and the tweak is unlikely to affect house prices. He argued that first-time buyers should enjoy easier access to credit based on income, as they are typically younger and on lower salaries relative to expected future earnings.

The move comes a year after the Central Bank initially adjusted its mortgage cap rules, introduced in early 2015. That change lowered the level of deposits first-time buyers need to build up in order to secure a loan.

The Central Bank governor said there were no current signs of house prices – rising at an annual rate of almost 13 per cent – falling again, as the economy remains strong, household incomes are rising, homes for sale are in short supply and interest rates remain low globally. But he said economic risks, including Brexit and the likelihood of interest rates rising over the medium term, may hit home values eventually.

Meanwhile, the Irish Fiscal Advisory Council, which advises the Government on budgetary matters, has warned that a return to rapid house-building may cause the economy to overheat.

In a report published on Wednesday it says a sharp uptick in construction activity could risk overheating the economy which would require higher taxes to counteract the impact. It signalled that the prospect of house prices easing back as supply grows would not be enough to protect the economy from overheating.