Jacob Law Articles

First-time buyers to be able to borrow four times gross income

The Central Bank is to increase mortgage borrowing limits for first-time buyers.

The Central Bank is to increase mortgage borrowing limits for first-time buyers.

The limit will raise from three-and-a-half times to four times their gross income which was in place since 2015.

The lending limits will still cap the quantity of a mortgage to 90% of a home’s value for first-time buyers. For second-time buyers, this will be increased rising from 80% to 90%.

This means that deposits of 10% of a home’s value are now required for both first and second-time buyers.

These changes are set to come into effect from 1 January 2023.

The changes to lending rules come after an 18-month-long review of the mortgage lending framework, with the Central Bank saying it had examined the experiences of other countries alongside holding consultations with the Irish public and stakeholders.

In a statement announcing the changes, Governor of the Central Bank Gabriel Makhlouf said that while the benefits of these changes might not be apparent immediately, they will help in the long term.

“The mortgage measures are essential in our mission to serve the public by maintaining the financial stability of the economy and households as a whole, so it is good policy practice to review these given the broader changes in the economy,” Makhlouf said.

“While not always immediately visible to people in their daily lives, the benefits of the measures are long-term.”

Maklouf said that both affordability and access to housing remain key challenges and said that there was a need to increase the supply of housing. He added that changes to policy would have an impact, both positive and negative, to broader society.

We are acutely aware that like all policy interventions, the mortgage measures have both benefits and costs to society. A lot has changed since the measures were first introduced. The changes we are announcing are both targeted and proportionate, and recognise the resilience built up over the last decade and the structural changes across the economy.

Also in 2021, figures published by the Central Statistics Office (CSO) showed that more than three-quarters of renters who share accommodation with others believe they will never own a home.

Writing in The Journal about the review of mortgage lending last year, Vasileios Madouros of the Central Bank said:

…our mortgage measures support good lending practices, guarding against a repeat of the credit boom and bust cycle that we saw in the 2000s.

He added:

At all points in time, there is a role for ‘guardrails’ to lending standards. They support good lending practices, preventing the widespread financial difficulties that we saw a decade ago due to unaffordable debt levels. They also aim to reduce the risk of another credit-fuelled house price boom.

House prices saw an upwards trend during Covid. They have risen by almost 8% compared to last year, despite a small drop in the last three months, according to the latest property price report from MyHome.ie.

New mortgage customers need “significantly higher incomes” to purchase homes now compared to a decade ago, according to a new report published in May by the Banking & Payments Federation Ireland (BPFI).

The report found median total household income of first-time buyer (FTB) borrowers increased from €71,000 to €77,000 between 2019 and 2021.

Source: TheJournal.ie With reporting by Aoife Barry and Tadgh McNally

First-time buyers to be able to borrow four times gross income​