Most of us would love to own a home at some point in our lives but recent rules from the Central Bank have made many of us question whether that will ever become a reality.
The situation is still in flux, as the Bank has deemed the next few months “a consultation period” in advance of the planned start date for the new regime in January.
Here’s what you need to know…
1) Why are these changes being introduced?
The Central Bank is seeking to stabilise the banking industry and prevent another property bubble. To do this, it is introducing a number of rules and regulations to limit the loans that can be offered by banks in Ireland.
2) How is this going to affect me?
Under the new rules, the majority of homeowners would only be allowed to apply for up to 80% finance on a property and would need to have 20% of the overall cost to put down as a deposit. This is one of the most controversial aspects of the plan as there are fears that it could force many young professionals and first time buyers into staying in the rental market.
For example, if you wanted to get a mortgage on a house with an asking price of €250,000, you would need to have €50,000 of a deposit saved in advance.
The banks have also been ordered to cap all mortgage loans at 3.5 times the applicant’s salary so you would need to be earning a minimum of €57,000 for the aforementioned €250,000 home.
However, Deputy Governor at the Central Bank Cyril Roux has said that banks will be allowed to make some exceptions.
“That’s why we introduced proportionate caps and we allow for exemptions as well. So there is a budget for banks to give loans over the 3.5 times mark and over the 80% mark. What we don’t want is for banks to give that to a very large fraction of their clients.”
3) So what you’re saying if that I’ll never afford to buy a house?
Don’t panic just yet. An Taoiseach Enda Kenny has said that he wants “home ownership to remain an attainable ambition for young, credit-worthy families”, which has been interpreted as an intention to set up a mortgage insurance scheme to circumvent the new rules.
It has been suggested that the if this is put in place, the current 10% benchmark for deposits would stay in place and the State would guarantee a portion of the mortgage being given out by a lender.
“In the UK, Finland and Canada, for example, “mortgage insurance” markets have been developed to support mortgage lending to First Time Buyers, while also improving the quality of such lending and reducing the risk to the banks themselves. I would like to see further consideration of the merits of a mortgage insurance scheme in the Irish context as a way to ensure adequate availability of mortgages for First Time Buyers,” he said.
The Oireachtas Finance Committee is currently preparing a report on the matter.
