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Mortgages- New lending limits

Central Bank announced new mortgage lending limits

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The Central Bank of Ireland (CBI) announced yesterday the introduction of loan-to-value (LTV) and loan to income (LTI) limits which will apply to mortgage lending by banks in the Irish market.  The CBI also confirmed the purpose of the measures is to reduce the potential financial vulnerabilities for both borrowers and the wider economy and will help ensure a stable and well-functioning mortgage lending market.

Who are affected?

  • First time buyers
  • Second time buyers
  • Buy-to-let buyers

Who are not affected?

  • Switcher mortgage customers, those who are moving from another bank, who are not purchasing a new property and are not borrowing any additional funds
  • Negative Equity customers, (those where the value of their home is less than they owe)
  • Private Dwelling Home (family home) loans entered into for the purposes of addressing pre-arrears or arrears

What are the Loan to income (LTI) changes?

  • Private Dwelling Home (family home) mortgages are subject to a borrowing limit of 3.5 times loans to gross income (single or combined incomes)
  • This income multiple limit does not apply to Buy-to-let (BTL) customers

What are the Loan to value (LTV) changes?

  • Private Dwelling Home mortgages for non-first time buyers are subject to a limit of 80% (Switcher, negative equity and arrears customers are exempt from the limits)
  • First time buyers who are buying a property up to a purchase price of €220k could borrow up to 90% (Purchase Price €220k, Loan €198k, 90% LTV)
  • First time buyers who are buying a property for more than €220k could borrow 90% of €220k and 80% of the difference between €220K and the actual purchase price.  For example:
Purchase Price €300,000
Deposit required €38,000
Mortgage (max available) €262,000
LTV 87%
   
Deposit calculation  
10% of €220k €22,000
20% of €80k (difference between purchase price   & €220K) €16,000
Deposit required €38,000
  • Buy-to-let buyers mortgages are subject to a limit of 70%

Are there any exemptions to the new LTI & LTV changes?

  • Yes
  • For Private Dwelling Home mortgages:
  1. The LTI limit should not be exceeded by more than 20% of the overall value of all PDH loans paid out by the bank on an annual basis
  2. The LTV limit should not be exceeded by more than 15% of the overall value of all PDH loans paid out by the bank on an annual basis
  • For Buy-to-let mortgages, the LTV limit can only be exceeded by no more than 10% of the overall Buy-to-let loans paid out by the bank on an annual basis
  • We are seeking further guidance from the CBI regarding the criteria under which an exemption can be considered

What about customers who have received an approval in principle or a Letter of Offer?

  • The new rules will not apply to customers who have received an Approval in Principle or a Letter of Approval before the effective date (which is yet to be confirmed)

When will the measures be introduced?

  • The effective date has yet to be confirmed.

Give us a shout if you have any questions or would like more info.

t: 0749103938 e: info@advicefirst

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