On 7th October 2015, the Central Bank published a set of new mortgage rules to potentially avoid another property crash in Ireland and dampen the rate of price rise currently being experienced in the market. The measures proposed place restrictions on the loan to value (LTV) and loan to income (LTI) ratios lenders can apply when lending to potential home buyers & will apply to all lending in Ireland by regulated firms.
“Our research has shown there is strong evidence that mortgage losses are much higher where borrowers have a high LTV or LTI rate,” Stefan Gerlach said. “We believe that measures such as these are a standard part of a well regulated financial system and introducing these precautionary measures should contribute to a stable and well-functioning mortgage lending market.”
The proposal states that no more than 15% of all new mortgages for private dwelling homes could be for more than 80% of the value of individual homes. Therefore, from January 1st, the majority of house buyers will have to pay 20% deposit when applying for a home loan. The new publication also states that most new buyers will be restricted to three and a half times their income to access how much they qualify to borrow.
“The primary objective of these measures is to increase the resilience of the banking and household sectors to the property market,” said Central Bank deputy governor Stefan Gerlach. “In Ireland we are still experiencing the destabilising effects of a property bubble.”
The proposals have been issued in a consultation paper.