What Central Bank new mortgage measures mean for Irish construction industry

Key changes designed “to improve the sustainability and effectiveness of the current framework”
  1. The Ceiling on the loan to value (LTV) ratio for all first time buyers to be set at 90%, from the current 90% for loans up to €220,000 and 80% for the balance of loans above €220,000. This will enable first-time buyers to borrow up to 90% of a value of a home, with a requirement for a 10 per cent minimum deposit.
  2. The 20% minimum deposit requirement (ie maximum LTV (Loan to Value) ratio of 80 per cent continues to apply to second and subsequent buyers.
  3. The structure of the proportionate LTV allowances is amended:
  • Five per cent of the value of new lending to first time buyers will be allowed above the 90 per cent LTV limit and
  • 20 per cent of the value of new lending to second and subsequent buyers for primary residences will be allowed above the 80 per cent LTV limit. 
  1. This replaces the current requirement allowing 15% of total lending for primary dwellings (the sum of lending to first time buyers and second and subsequent buyers) above the LTV limits.

The current two-month valuation period will be extended to four months in recognition of the fact that a portion of house sales can take longer than the average three months to conclude.

Outcomes of Mortgage Measures Review

The Central Bank of Ireland today (23 November) announced the awaited outcome of the review of the mortgage measures, following an extensive consultation and evaluation process. The mortgage measures were introduced in February 2015 to enhance the resilience of both borrowers and the banking sector.

A Central bank spokesperson said: “Following the review, the framework is broadly unchanged. The 3.5 times ceiling on the loan to income (LTI) ratio remains. Requirements for buy to let borrowers and the exemptions for negative equity mortgage borrowers from the measures also remain unchanged.

Central bank Governor Philip Lane said: ‘Over the past 18 months, the measures have helped to ensure that those who buy homes are better prepared to manage their mortgage payments in the event of a future downturn in the economy or in the housing market. While our review process affirmed the value of the overall framework, some modifications to the measures were suggested by our evidence-based analysis.’

‘The 3.5 times ceiling on the loan to income ratio remains unchanged. The 90 per cent loan to value ratio limit for all first time buyers simplifies the overall framework, with only 5 per cent of lending permitted above this level. The 20 per cent allowance for lending above the 80 per cent loan to value ceiling for second and subsequent buyers is broadly in line with current lending patterns.   The loan to value requirements for all other buyers will remain in place. Taken together, these measures constitute a sustainable framework to underpin our financial stability objectives.’

The new measures will be in place from 1 January 2017.

More to follow at www.constructionnews.ie