One in six homebuyers exempted from mortgage rules

The Central Bank’s mortgage lending rules may be making it more difficult for homeowners to get on, or move up, the property ladder, but figures it released on Monday show more than one in six buyers were exempted from the rules.

Of the almost 11,000 loans drawn down by residential buyers in the first half of the year, that come within the scope of the rules, some 1,744 loans, or 16 per cent, received an exemption, according to an economic letter which provides an update on rule compliance.

The most common exemption was on income multiples, which allows homebuyers to borrow more than 3.5 times their income, while a significant number also borrowed more than 80 per cent of the cost of their home – or 90 per cent for first-time buyers up to €220,000.

The study shows that some €2.3 billion in mortgage loans were offered during the first half of 2016, the vast majority – 93 per cent – covered by Central Bank’s mortgage lending rules.

The study is based on 12,339 loans (some were investments) drawn down from AIB, EBS, Bank of Ireland (BoI), Permanent TSB , Ulster Bank and KBC Bank Ireland. It offers a useful insight into how lending has changed since the introduction of the rules in February 2015 – and what putative homebuyers should be aware of if they’re in the market for a mortgage.

A 100 per cent mortgage

They may be almost extinct, but the study shows banks are still lending 100 per cent of the purchase price to some borrowers. According to the Central Bank study, a small number of borrowers had a loan-to-value (LTV) of 100 per cent in the first half of the year.

People are borrowing more

The average loan drawn down by first-time buyers was €180,011 (up €7,000 on 2015) and the average price paid for a home was €244,320 (up €9,000 on 2015).

For trader-uppers, the average loan drawn down was €211,662 (up over €7,000 on 2015), the average property price was €380,752 and the average income was €105,473.

While the average LTV for first-time buyers was 78.6 per cent in the first half of 2016, it doesn't mean that the average first-time buyer has a deposit of more than 22 per cent. As discussed here, most first-time buyers actually borrow more than this, with the Central Bank study showing that more than 70 per cent of first-timers borrow more than 90 per cent.

First-time buyers are getting older and most are single

The first time the Central Bank did this study, the average first-time buyer was 33: that has edged up to 34. Some 10 years ago the average first-time buyer was 29 but it has risen steadily since.

Second time buyers – many of whom would have been 29-year-old first-time buyers – are older too, with an average age of 41. The study also shows that most first-time buyers today are single (57.2 per cent) and over a third live in Dublin.

Exemptions are plentiful

If you’re struggling to get onto, or move up, the property ladder, and comply with the mortgage rules at the same time, you should take heart – about one in every six homebuyers is getting an exemption from the lending rules, the figures from the Central Bank show. Out of the almost 11,000 loans drawn down by residential buyers in the first half of the year within the scope of the rules, some 1,744 loans, or 16 per cent, received an exemption. The most common exemption was for the income multiple (972 loans) with a further 772 loans given an LTV greater than 80 per cent.

But they could be on the wane

While exemptions were plentiful in the first half of the year, homeowners should note that the Central Bank imposes a limit on exemptions banks can offer.

This means the total value of new lending above the regulator’s limits should be no more than 15 per cent of the value of all mortgages in a calendar year. So, to comply with the “calendar year” requirement, banks may be slow to offer exemptions between now and year-end.

It is possible to get an exemption on both LTV and LTI

Typically, homebuyers are told that if they are looking for an exemption, they can ask either to borrow more than 80 per cent (90 per cent for first-time buyer) or for an income multiple higher than 3.5 – but not both. However, the Central Bank study shows some homeowners have achieved exceptions on both fronts. The numbers doing so are small, however, at less than 1 per cent of the value of total residential lending.

First-time buyers more likely to get income exemption

The study also shines a light on the type of borrowers qualifying for an exception to the rules. According to the Central Bank, second-time buyers accounted for most of the exemptions from the LTV limit (63 per cent), but when it came to the income multiple, far more first-time buyers (72 per cent) benefited from an exception.

A higher share of couples and Dublin-based borrowers sought to borrow more than 80 per cent, and had higher than average incomes. Single buyers were more prevalent among those looking to borrow more than 3.5 times their income. Loans with an LTV allowance were largely grouped between 80 and 90 per cent LTV, with an LTV of 90 per cent being the most common.

“The average borrower with an LTI [loan-to-income] allowance also had lower income, was younger, took a larger loan and bought a more expensive property than those without an allowance.”

It is possible to get a negative equity loan

They have been available for some time now, allowing homeowners stuck in negative equity to sell up and carry their debt with them to their new property. However, many would-be trader-uppers have found it difficult to actually complete the process and avail of such a product.

According to the Central Bank, the product is not just available – it works. Some 240 negative equity loans (worth €37 million) were drawn down in the first six months of the year. Given that these loans carry debt from the sale of the previous property, they had a considerably higher average LTV, at 91.9 per cent. They also typically had a higher LTI (2.9) and longer loan terms, at an average of 26 years.

Borrowers in negative equity are exempt from the regulations, as are those switching mortgages.