New Mortgage Rules Will Add To The Affordability Squeeze
We are all looking for a place to call our own whether it be to start a family or get out from under out parents nose. However, the cost of mortgages and overall housing affordability is always a significant barrier.
House prices have been on the increase lately, especially in urban areas, and mortgages are in high demand but short supply as banks tighten their lending criteria. Unfortunately, the bad news continues for those looking to get their first home or move up to start a family.
The Central Bank recently outlined new regulations on residential mortgages which it says aims to reduce indebtedness and reduce risk across the banking, property and general household sectors. The measures include the introduction of a Loan to Value limit (previously decided by individual banks) and a Loan to Income limit which will be introduced to Ireland for the first time.
The impact of these measures will affect people differently but One Big Switch have outlined how the measures are likely to affect you or members of your family below:
First Time Buyers
Loan to Value (LTV) limit of 10% up to a property price of €220,000 and 20% thereafter
Loan to Income (LTI) Ratio of 3.5 times your annual income
House price: €300,000
Annual household income: €80,000
Deposit required: 10% on the first €220,000 = €22,000
20% on the remaining €80,000 = €16,000
Total Required Deposit: €38,000
Income Mortgage Limit: €280,000
Total Mortgage Required: €262,000
Within income limits: Yes
First time buyers have been saved from having to save for a full 20% deposit. However, rising property prices especially in the capital means the income limits will greatly restrict choice for couples looking for the first home and exclude single people from the market altogether.
Mover Buyers (Non- First Time Buyers)
Loan to Value limit of 20%
Loan to income (LTI) ratio of 3.5 times your annual income
New House price: €500,000
Existing house value: €300,000
Existing Equity: €100,000
Annual household income: €120,000
Deposit required: 20% of €500,000 minus existing equity = €0
Total Required Deposit: €0
Income Mortgage Limit: €420,000
Total Mortgage Required: €400,000
Within income limits: Yes
The increase in the loan to value limit means non first time buyers are likely to take longer to build up sufficient equity or savings to trade up to a larger home. Increases in prices for family homes also means couples will come under increasing pressure to boost their earnings as family homes become more and more unaffordable