The Professional Insurance Brokers Association (PIBA) chief operations officer, Rachel McGovern, said that the easing of the restrictions was welcomed. However, she also went on to say that, by not altering the rules for existing homeowners, the regulator’s decision was “very unjust”.
The statement came after the Central Bank made changes to the rules for new borrowers lending limits. First-time buyers will now be able to provide a minimum deposit of 10 percent, instead of the previous 20 percent, irrelevant of the value of the property.
“The 20 per cent deposit for second and subsequent buyers represents a lost opportunity for many who now find themselves facing a moving target as prices and rents continue to increase,” Ms McGovern stated in her press release.
New rules for first-time buyers
The Central Bank’s new rules have come at a time when Irish interest rates are at their lowest for years. The old rate of 20 percent meant that many families looking at buying a home at over €220,000 could not get onto the property ladder. This new change will mean that families can now afford the deposit while house prices and interest rates are still low.
Unfair for existing homeowners
While the first-time buyers are revelling in the new rules, existing homeowners are stuck with the 20 percent rule. This means that many potential buyers, who need to move for whatever reason, are bound to find the 20 percent deposit.
Fianna Fáil spokesman, Michael McGrath agreed with Ms McGovern, and stated that the relaxed rules, when combined with the government’s help-to-buy scheme, could end up driving house prices up. Second-time buyers will lose out in this and many families will be stuck in houses or apartments that are not suitable for their needs.
“I have genuine concerns about the combined impact and effect on the price of new homes of the new deposit rules and the government’s help to buy scheme. With a very limited supply of new homes on the market at present, there is a considerable risk of further house price inflation,” Mr McGrath said.
Amendments will have little effect
The Central Bank responded to the concerns when Philip Lane, governor of the Central Bank, stated that he expected the changes to have little effect on the price of property. He also added that the proposed cap, which restricts buyers to a limit of 3.5 times their income, would keep prices “in check”.
The Central Bank has committed to react accordingly if the relaxed rules caused “red flags” in regard to house prices increasing. Mr Lane went on to say that with unemployment dropping, and there being more signs of rising income levels, the economic growth would help second-time buyers.
Bending the rules
The new rule changes also mean that the banks can lend more than the 80 percent limit to up to 20 percent of their second-time buyers. Issuing of mortgages outside the limits was previously only allowed to 15 per cent of their existing customers. And an additional 5 per cent of lending to first-time buyers will be allowed outside the 10 percent requirement.
Finance Minister, Michael Noonan, has also welcomed the changes to the rules. He said that, along with the help-to-buy scheme, many new buyers would be able to afford the mortgage that was “suitable to their needs”.
The scheme, set up by the government to help first-time buyers afford a mortgage, allows them to claim a rebate of 5 percent on their tax, to go towards their home deposit. The combined effect of this and the new relaxed rules will mean that most new buyers will only need to find 5 per cent of the value of the home as deposit.
Since the rebate does not need to be repaid, it means new buyers will not be taking on more credit than they can realistically afford.
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