The Central Bank published its definitive rules on mortgage lending last week.
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.
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.
A first time buyer is defined as a borrower to whom no housing loan has ever before been advanced.
Bank lenders will have some discretion
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.
Buy to let investors 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.
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.
Equity release and top up mortgages will be covered by the new rules so if you want to extend your mortgage to put on an extension, then you will need to have a 20 per cent deposit.
The rules are expected to take effect in the next few weeks.