New Irish mortgage rules published today by the Central Bank mean that from next January most house buyers will need to have a 20% deposit when applying for a home loan.
The Bank published its Consultation Paper 87 to place restrictions on the loan to value (LTV) and loan to income (LTI) ratios lenders can apply when lending for house purchase and will apply to all lending in Ireland by regulated firms. It said the measures introduce proportionate limits and specific exemptions which take into consideration that there are some cases which could fall outside strict limits.
Stefan Gerlach, deputy governor, said, "The primary objective of these measures is to increase the resilience of the banking and household sectors to the property market. In Ireland we are still experiencing the destabilising effects of a property bubble. Our research has shown there is strong evidence that mortgage losses are much higher where borrowers have a high LTV or LTI rate. 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."
Cyril Roux, deputy governor, added, "These measures have been carefully considered and, taking past experience into account, are being introduced at an appropriate time to ensure borrowers and lenders can withstand potential economic or property market shocks in the future without financial distress. These measures are not intended to replace lenders’ own risk management practices, but rather they should reinforce and strengthen the existing risk mitigation practices used to ensure prudent lending.
"As it can be assumed that a regime of the type foreshadowed in the consultation is likely to be introduced, we expect lenders not to accelerate high LTV or LTI loan approvals in advance. We will continue our close supervision of lenders and have set out clear monitoring requirements which will apply."
The measures set out are:
- Restrict new lending for principal dwelling houses (PDH) above 80% LTV to no more than 15% of the value of all new PDH loans;
- Restrict new lending for PDHs above 3.5 times LTI to no more than 20% of the value of all new PDH loans; and
- Restrict new lending to buy-to-let above 70% LTV to no more than 10% of the value of all housing loans for investment purposes.