The Central Bank has moved to ease its mortgage lending rules for short-term bridging loans aimed at funding the purchase of a home prior to the sale of an existing property.
The regulator said that it will exempt certain principal home loans from the loan-to-income (LTI) requirement that generally applies to owner-occupier loans. However, a loan-to-value limit will continue to apply.
The amendment recognises that bridging finance products are a feature of the evolving Irish mortgage market and ensures that the regulatory framework adapts appropriately to continue to support market functioning without compromising lending standards or resilience of borrowers and lenders in the mortgage market, the Central Bank said.
Within the measures, a principal home bridging loan is a short-term loan – with a maximum term of 18 months – that facilitates existing homeowners to purchase a new principal home before completing the sale of their current property. Unlike standard mortgages, these loans are repaid from the proceeds of the property sale rather than from regular income.
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“This targeted amendment reflects our commitment to ensuring the mortgage measures remain fit for purpose as the market evolves,” said Vasileios Madouros, a deputy governor of the Central Bank. “Bridging loans serve a purpose in helping homeowners move between properties, and the LTI limit is less relevant for products where repayment comes from asset sale proceeds rather than regular income.”
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The current regulations allow most first-time borrowers to take out loans of up to 4 times their gross annual salary, while the limit for second and subsequent buyers is 3.5 times. They also permit a maximum loan-to-value of 90 per cent for a principal home and 70 per cent for buy-to-let properties.
Lenders may allocate up to 15 per cent of the value of owner-occupier lending to loans that exceed the limits. The exemption rate for buy-to-let business stands at 10 per cent.
