What do the tweaks to the mortgage rules mean for you?

The Central Bank’s statement on Tuesday on mortgage loans – what’s it all about?

The Central Bank introduced new restrictions in February 2015 to limit the amount that banks can lend to people to buy homes, in order to avoid a repeat of the last crisis, where borrowers took on too much debt and banks found themselves grappling with a surge in bad loans. The effects of that are still felt today, almost a decade on. The mortgage caps are here to stay, though they are subject to an annual review.

So, have there been any changes this time?

Yes, but not as sweeping as the tweaks introduced last year. Let’s step back first. In February 2015 the Central Bank said most loans could not exceed 80 per cent of the purchase price of a property or 3½ times homebuyers’ gross income.

In response to concerns about first-time buyers’ access to credit, the Central Bank moved last year to ease restrictions on this category. Whereas previously, first-time buyers were required to build up a 10 per cent deposit against the first €220,000 of a loan and 20 per cent on the balance, it decided in November 2016 to allow first-time buyers to build up just a 10 per cent deposit on any size of loan.

Central Bank targets second-time buyers amid property price risks

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While some commentators have said that the easing of this rule – combined with the Government’s help-to-buy scheme for first time buyers, introduced in January – have fuelled residential price increases, the Central Bank decided on Tuesday to stick with the measure for the moment at least.

However, it has made it more difficult for second-time buyers to get large loans. From January, banks can allow only 10 per cent of lending to second and subsequent home buyers to breach the 3½ times loan-to-income cap. However, 20 per cent of the value of new lending for first-time buyers can be above this limit. Up until now the 20 per cent waiver had applied to all lending.

Will this lead to an upheaval in the mortgage market?

The Central Bank claims not. It said on Tuesday that the new loan-to-income measures are in line with banks’ current lending patterns.

But why are second-time buyers being targeted?

The Central Bank argues that first-time buyers are typically younger, on lower salaries and have greater prospects of seeing their incomes rise in the future.

But with house prices soaring, is it not time that the Central Bank move to tighten the rules?

The Central Bank has consistently argued that there is no sign of a lending bubble, even though house prices as are currently rising at an annual rate of 12.8 per cent, as of September. Banks are expected to lend about €7.5 billion on mortgages this year, well off the €40 billion peak of 2006 and what economists see as a normalised market of about €10 billion a year.