Financial Stability Note: Fifth of all mortgages in 2018 availed of exceptions from mortgage measures requirements

26 July 2019 Press Release

Houses in a row

  • Mortgage measures exceptions, where loans can exceed the stated LTV and LTI limits, provide flexibility to assist single borrowers, younger borrowers, those on lower incomes and those buying in expensive areas.
  • Close to half of first time buyers with an LTI exception are also borrowing at the maximum available mortgage term and LTV.
  • Exceptions for first time buyers typically go to single applicant buyers, located in Dublin with lower to mid-range incomes.

The Central Bank has published a Financial Stability Note by Christina Kinghan and Fergal McCann which examines how the system of allowances available under the Mortgage Measures framework is used by lenders. The exceptions acknowledge that higher loan to income (LTI) and loan to value (LTV) mortgages can be appropriate in certain circumstances. The research explores how exceptions are allocated across borrower groups, and banks’ choice of LTI and LTV levels within the exception group.

The research finds:

  • Exceptions are being used by lenders and from 2016 to 2018, 20 to 25 per cent of total lending value has been issued with an exception, close to the maximum permitted.
  • A very small number of borrowers receive both an LTV and LTI exception. Lenders are maximising the use of exceptions by limiting borrowers to exceptions in one category.
  • There are differences in how exceptions are applied to first time buyers in Dublin and outside Dublin.
  • In Dublin, LTI exceptions have allowed borrowers located in the capital on relatively lower incomes to draw down relatively larger loans, to purchase similar or slightly more expensive homes. Outside of Dublin, borrowers with similar income profiles to those without exceptions are using an exception to expand the property valuation they can access through taking on a larger loan size.
  • While 33 per cent of exceptions had an LTI above 4 in 2015, by 2018 this increased to 47 per cent of exceptions.
  • The research concludes that the mortgage measures have been largely successful in tempering risk-taking in the mortgage market, while allowing for discretion to allow higher-LTI and higher-LTV lending to be issued to otherwise constrained borrowers.

Library of Financial Stability Notes

Link to full data release on 2018 mortgage lending under the measures