The Central Bank of Ireland has announced a raft of “targeted” changes to mortgage measures following a review of its framework.
Mortgage measures were introduced in 2015 and set limits on the amount of money that a person can borrow to purchase residential property using loan-to-income limits and loan-to-value limits.
It stated that its measures aim to ensure “sustainable” lending standards in the mortgage market to “prevent the emergence of an unsustainable relationship between credit and house prices and ultimately support the resilience of borrowers, lenders and the broader economy”.
It outlined that it has designed the measures to “promote financial stability by ensuring that banks and other lenders lend money responsibly and people don’t borrow more than they can afford when purchasing a property”.
According to the Central Bank of Ireland, from January 1st, 2023:
- The loan-to-income limit for first-time buyers will increase to four times gross income;
- For second and subsequent buyers, the loan-to-income limit will remain unchanged at 3.5 times gross income;
- The deposit requirement is reducing to 10%;
- Lenders will continue to be able to provide “a proportion” of lending above limits.
Vasileios Madouros, director of financial stability at the Central Bank of Ireland, said that over the past eighteen months, it conducted a “comprehensive” review of mortgage measures framework to ensure that measures “remain fit-for-purpose” into the future.
He said the body looked at the experience of other countries with similar measures and engaged with a “wide” range of stakeholders, both at home and abroad.
It also listened to and learned from the views shared by the public, who these measures ultimately serve.
He explained: “Our review has reaffirmed the benefits of the measures for fostering a more sustainable mortgage market.”
“Of course, many things have also changed since the measures were introduced seven years ago. The banking system is more resilient, and levels of indebtedness across the household sector have fallen.”
“At the same time, house and rent prices have continued to increase, as the supply of housing has not kept up with demand.”
“Amidst the changes and to remain fit-for-purpose into the future, the mortgage measures also need to evolve, which is why we have introduced targeted changes to the rules.”
“This is consistent with our goal of safeguarding financial stability by fostering long-term resilience of household and the economy,” Madouros concluded.