Mortgage Measures

The Central Bank of Ireland has announced the outcome of the 2017 review of the mortgage measures affecting homebuyers.

This second annual review follows an extensive evaluation process and is published alongside an FAQ for consumers.

It confirms that the measures continue to operate as intended but contains two changes to make them operate better.

The changes will take effect from 1 January 2018.

• The first change relates to the proportion of income allowances available to first time buyers (FTBs) and second and subsequent buyers (SSBs). 
• The second change prescribes how lenders calculate the value of collateral for purchase-to-renovate mortgages.

Change to Loan-to-Income Allowances

Under the existing measures FTB and SSB mortgages are capped at 3.5 times income. This is known as the loan-to-income (LTI) limit.

Currently banks or other credit institutions can issue loans with up to 20% of the combined value of FTB and SSB mortgages allowed above the 3.5 LTI ratio.

Under the revised measures the proportion of mortgages allowed above the cap is split into separate FTB and SSB categories.

From 1 January 2018:

• 20% of the value of new mortgage lending to FTBs can be above the LTI cap
• 10% of the value of new mortgage lending to SSBs can be above the LTI cap

Purchase-to-renovate Mortgages

The second change prescribes how lenders calculate the value of collateral for purchase-to-renovate mortgages.

From 1 January 2018, when calculating the value of collateral for purchase-to renovate mortgages, lenders must take the lower estimated value of the property after completion of all works.

This valuation occurs at the time of the loan agreement.

Background

First introduced in February 2015, the mortgage measures are aimed at enhancing the resilience of both borrowers and the banking sector.

The measures set limits on size of mortgages that consumers can borrow through the use of loan to value (LTV) and LTI limits.

The measures are reviewed annually by the Central Bank.

The first review was announced in November 2016 with changes taking effect 1 January 2017.

2015 Regulations (Statutory Instrument No. 47 of 2015)
2016 Regulations (Statutory Instrument No. 568 of 2016)

Previous Consultations

The regulations were also informed by a public consultation issued in 2014. The Central Bank of Ireland published a feedback document providing an overview of responses to the submissions made during the consultation process and the review process undertaken by the Central Bank of Ireland.

For further information see: CP87 Macro-prudential policy for residential lending.

See also:

• Explainer – What are the Mortgage Measures?
• Mortgage Measures - FAQ