Relaxing of mortgage rules for the new year to allow families breathe

By January 5, 2017Articles
Philip Lane, Governor of the Central Bank of Ireland, has taken the decision to relax existing rules regarding mortgages in Northern Ireland. Taking effect as from January 2017, this new set of measures will mean that more people can afford to jump on the property ladder and allow certain families to sit back.

Relaxing the rules

The change in the rules pertaining to mortgages has been welcomed in the Republic of Ireland. The Central Bank announced that certain rules will be relaxed to give first-time buyers a better chance of getting a loan.

The changes come as interest rates in Ireland start to drop slowly, and there is a reduction in the amount of repossessions, in favour of renegotiation of distressed mortgages.

The changes will mean that first-time buyers will only need to put up 10 percent of the loan-to-value (LTV), regardless of the total value. Previously, the 10 percent deposit was only available for properties up to the value of €220,000. On higher value property, the deposit was of 20 percent.

A much appreciated decision

Taoiseach Enda Kenny, head of the Republic’s government, said he welcomed the relaxation of the Central Bank’s rules. “The decision of the Central Bank is to be welcomed here. Obviously they have put in conditions in respect of second and subsequent buyers. The Government’s programme of €5bn worth of investment through the five pillars is very important,” he said in a recent press conference.

Michael Noonan, Minister for Finance, stated that he welcomed the “abolition” of the €220,000 LTV limit for first timers, and that it would allow those looking to buy a home to find it easier to get a loan to suit their buying needs.

Help-To-Buy Scheme

Michael Noonan also announced the government’s “help-to-buy” scheme in the Budget for 2017. The scheme is designed to give first-time buyers a rebate on their tax of 5 percent of the value of their purchase of a newly-built home, with a maximum value of €400,000. The scheme will be backdated to 19 July, 2016, and will run until 2019. Combining this with the new relaxed rules will be a great help for the first-time buyers in the property market.

Bank exceptions

The new rules also mean that banks will be allowed to make exceptions to the LTV deposit limits. An additional 5 percent of the new buyer loan book for the banks will be allowed above the 90 percent LTV limit. And 20 percent of the loan book for second and subsequent buyers will be allowed above the 80 percent LTV limit. This will give the banks much more flexibility in those exceptional cases where a higher than 20 percent deposit can be given. Loan to value requirement for all loans will still remain the same.

Fears over increase in prices

However, there are some who fear that the relaxation of the rules may push property prices higher than ever. Prices have already seen an increase in the last quarter of 2016. With loan-to-income ratio remaining unchanged at 3.5 times the buyer’s annual income, higher prices could be a problem still. And a limited supply of newly built homes will mean that many first-time buyers will lose out.

Michael McGrath, financial spokesperson for Fianna Fáil said he was cautious about the changes.


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