Central Bank to ease income rules for mortgage lending

The Central Bank is set to say on Wednesday that it will ease its mortgage rules marginally to allow households to borrow up to four times their income in taking on a home loan, according to sources.

This marks a change on current limits, in place since 2015, where lenders are restricted to only offering loans of up to 3.5 times income to most mortgage borrowers.

It is understood that the regulator plans to keep in place its loan-to-value caps, restricting mortgages to 90 per cent of the value of a property for first-time buyers and 80 per cent for those buying a subsequent home. A spokeswoman for the bank declined to comment.

The Central Bank governor, Gabriel Makhlouf, announced in May last year that he was carrying out a major review of effectiveness of the so-called macroprudential mortgage rules — outside of the usual annual assessment to see if they need minor tweaking.

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The Central Bank noted last December that one of the suggestions put forward as part of a consultation process was for those earning below €60,000 should be able to get a loan of up to 4.5 times income.

Some of the State’s biggest housebuilders — including Cairn Homes and Glenveagh Properties — had publicly argued that the extent of the limits were affecting the viability of certain projects for smaller builders, who are largely reliant on alternative finance providers after mainstream banks retrenched from development lending in the wake of the crash.

However, the outcome of this review, to be unveiled on Wednesday morning, comes at a time when some lenders are tightening their own mortgage lending criteria, amid rising interest rates and the cost-of-living crisis. Domestic inflation was running at an annual 8.6 per cent in September, hovering at levels last seen four decades ago.

Non-bank lender ICS Mortgages moved in August to temporarily restrict new home loans to 2.5 times borrowers’ gross income. First-time buyers approaching ICS for a mortgage now must have a 20 per cent deposit, while movers must provide 30 per cent.

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ICS also imposed a stipulation that prospective borrowers must show that they will have €1,000 at the end of every month, after monthly living expenses and mortgage payments at current rates, to secure a new home loan.

Another lender, Finance Ireland, is looking for prospective clients to show that they have a €250 monthly financial buffer to secure a loan from it. Bank of Ireland has also tweaked its mortgage calculator as it continues to monitor repayment capacity of new mortgage applicants.

While ICS, Finance Ireland and another nonbank lender Avant Money have each increased the cost of certain mortgage products in the wake of the European Central Bank (ECB) hiking its main rates by 1.25 percentage points since July, AIB last week became the first mainstream bank to increase rates, on new fixed-rate loans.