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NewsNew Mortgage Rules Will Add To The Affordability Squeeze

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

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Limits introduced

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
               
Example
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

Implications

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)
Limits introduced
Loan to Value limit of 20%
Loan to income (LTI) ratio of 3.5 times your annual income
               
Example:
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
               
Implications
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
                
          

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New Mortgage Rules Will Add To The Affordability Squeeze

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Mike
Mike from WH commented:

Point taken, but I'm not convinced that the rules will cause house prices, and thus mortgages, to rise. I have always felt that property in Ireland is over-priced, but I'm an old fart now and can only refer to my own experiences. The price I paid for my first house wouldn't buy a decent used car nowadays, and the only way I could afford a better house was to build it myself. I'm not suggesting that that is the way all young people should go, but I do believe that owners of a property that is standing empty right now should be inclined to sell for whatever reasonable price they could get, rather than hang on for a hoped-for increase in value in a few years time. So many empty houses just standing idle, costing their owners money with the needed regular repairs, when they could be sold on to younger buyers for them to "do-up" - that gets money circulating again, and that creates more jobs . . . . We're all winners with that scenario - how many winners are there with empty houses decaying away or getting vandalised? 

Mike
Mike from WH commented:

The new rules are a sensible move, to stop buyers, young and old, from over-reaching themselves with the amount of debt. The figures quoted in the article seem to refer to property in the Dublin area, but look further afield, and houses are much more affordable, so it makes sense to get away from the higher costs associated with property in Dublin. If you HAVE to live in Dublin, at least start out in the sticks, build up some equity, starting with a cheap house, and moving on up as funds allow. No-one has to buy a house and live in it for ever - it's part of your learning curve - live for now - not for the future. 

Anonymous
Anonymous from D replied to Mike:

Thanks for the feedback Mike. While this point is certainly worth consideration, our broader point is one of affordability & the increased strain higher mortgages puts on consumers in general. 

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