Rule Changes Hit Mortgage Market

By January 5, 2017Articles
Buying a home in Northern Ireland has become too hard for many people. The Irish mortgage market has been described as “dysfunctional”, and is not allowing demand for house purchases to be met.

Dysfunctional Market

The problem faced by prospective home buyers in getting loans has resulted in lowered lending totals. While the demand for houses is high, especially in the urbanised areas, the ability to secure a housing loan has become harder. Changes in the Central Bank’s lending rules restrict the amount of the loan to only 3.5 times the annual income of the home buyer.

Chairman of Mortgage Brain Ireland, Michael Dowling, said he had “never experienced such a dysfunctional mortgage market”. With the restrictions leaving home buyers only allowed to loan 80 percent of the value of the property, many people cannot afford to get onto the property ladder. According to the five banks that are currently lending to the Irish market, their “hands are tied” by the Central Bank’s rules.

Exceptions to the Rule

There are some exceptions to the Central Bank’s rules. Banks are allowed to let 15 percent of their loan book borrow at 90 percent loan-to-value (LTV), and 20 percent at more than 3.5 times the income. However, since borrowers cannot use both exceptions, this has not addressed the issues within the lending market.

However, one issue facing loan applications is that, with the year soon to end, the banks are closing their books on new lending that meet the exceptions criteria. AIB and Ulster Bank have already closed for business that requires an exception from the rules laid out by the Central Bank. And it is expected that the other three banks will soon follow suit, leaving prospective borrowers with no options for the last two months of the year.

Negative Equity Mortgages

Negative equity is also a factor hitting the Irish market. With more than 200,000 homeowners in negative equity, selling their home to move is often not an option. Homeowners are faced with being unable to move, as the current negative equity mortgage system is no good for the present situation. Mr. Dowling said, “Only 300 negative equity mortgages were transacted in 2014. This product needs to be completely revamped.”

He went on to explain that, with the closing of the books in Ireland, the total annual lending of the country will be less than that of Greater Manchester.

European Union Should Step In

Fine Gael MEP for Dublin, Brian Hayes, is calling on the European Union (EU) for an “EU-wide” market for lending and mortgages. With an internal mortgage market, the EU could control the lending rates, meaning Irish borrowers would not face the current rip-off rates. With an average standard variable rate (SVR) of 4.18 percent, Ireland is almost 2 percent above the European average.

The EU, in response, is now examining factors that may allow for cross-jurisdictional access to mortgages and other financial services. They are currently in discussions as to how the market obstacles can be removed.


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