In the paper released by the Central Bank of Ireland, it is clear they have gone macroprudential! According to the Irish Times new rules will be applied to mortgage lenders in Ireland from 1 January 2015. A 2 month consultation period now starts, so they may get tweaked before implementation. The UK had announced parallel measures earlier.
New mortgage rules published today mean that most house buyers will have to have a 20 per cent deposit when applying for a home loan. The regulations come into force on January 1st.
The Central Bank is proposing that no more than 15 per cent of all new mortgages for private dwelling homes should have a loan to value (LTV) ratio above 20 per cent. This means that most first-time buyers are now going to be expected to have at least a 20 per cent deposit when buying a home.
In addition, it has also decided that just one-fifth of new mortgages should be issued above a level of three and a half times income (LTI).
In the case of buy-to-let properties, no more than 10 per cent of the value of all new loans should have an LTV above 80 per cent.
The Central Bank’s deputy governor said these measures should help to avoid another property crash in Ireland and dampen the rate of price rise currently being experienced in the market.
“Our research has shown there is strong evidence that mortgage losses are much higher where borrowers have a high LTV or LTI rate,” he said. “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.”
The regulator said the income caps would be “more binding” than the LTV ratios in a period of boom as pay levels could never keep pace with soaring property prices.
The LTV caps are not “completely counter-cyclical” as loan values will rise in line with property prices.
Certain exemptions are proposed to the new rules. These cover residual debt from home loans in negative equity, switcher mortgages, and home loans in arrears. Buy-to-let borrowers will also be exempt from the income restrictions.
Here is the Economist’s comparison chart, showing UK, Ireland and Australia – and we thought we had a problem!
