Many of you house hunters will already be aware of the new Central Bank mortgage rules but if you’re thinking about applying for a mortgage for the first time, here’s a quick primer.
First Time Buyers
In Central Bank speak, the term “first time buyer” actually means “first time borrower”. So, if you are getting a mortgage for the first time you are a first time buyer. The new rules allow banks to lend you up to 90% of the value of the property, up to a value of €220,000 and up to 80% of the value on the balance above €220,000. A €400,000 property will therefore require a deposit of €58,000 – 10% of €220,000 and 20% of the remaining €180,000. The more expensive the house, the higher percentage deposit is required. In addition, your mortgage amount will be limited to 3.5 times your income (or 3.5 times both your incomes for joint mortgage applications).
If you’re not a first time buyer I’m afraid you will need a deposit equivalent to 20% of the property value. And again, your mortgage amount will be limited to 3.5 times your income (or 3.5 times both your incomes for joint mortgage applications).
If you’re buying to let, the news is even worse. You will need a deposit equivalent to 30% of the property value. But the good news is that the (3.5 times) loan-to-income restriction does not apply.
Yes, the banks have been given some leeway. They can exceed loan-to-income rules in 20% of cases, exceed home loan-to-value rules in 15% of cases, and exceed investment property loan-to-value rules in 10% of cases. How this will work in practice is anybody’s guess as the banks will have discretion. Let’s just hope that this ‘authorised rule-breaking’ is applied fairly across the board.
When Do The Rules Start?
If you already have mortgage “approval in principal” then the new rules will not be retrospectively applied to you. But once your approval runs out (usually after six months) any new mortgage approvals must follow the new Central Bank rules. If you are struggling to find a house to buy and you are worried about your mortgage approval running out, ask your lender what your options are – and don’t be afraid to ask if one of the exceptions can be applied to your case.
This article first appeared on IrishHome.ie