Q&A: How have Ireland's mortgage lending rules changed?

The Central Bank said the changes have been 18 months in gestation and that they recognise that the housing market in Ireland has changed structurally.

In theory, the changes should give borrowers more funds, more bargaining power, and therefore more freedom. File Picture: iStock

What has happened?

Ireland’s Central Bank, which doubles as the financial regulator, has changed its mortgage lending rules for the first time to relax the restrictions on what people can borrow in order to finance a house purchase.

What are those rules?

The mortgage lending rules were introduced in 2015 in a bid to prevent people from borrowing beyond their means — one of the key hallmarks of the late-noughties property crash, where 100% mortgages (and greater) and multiple properties had become commonplace. In a nutshell, the rules made it so that first-time buyers could borrow only up to 3.5 times their salary (or joint salaries in the case of couples) to buy a home and were required to provide a minimum of a 10% deposit for any such purchase.

The rules were stricter for second-time and subsequent purchasers, who were required to provide a 20% deposit.

What has changed?

From January 2023, first-time buyers will be able to borrow up to four times their salary for a mortgage, which at brass tacks means they can afford a more expensive property. 

While the new salary ratios only apply to first-time buyers, the deposit requirement has been relaxed for second-time buyers – it’s now 10% for them also. The requirement for buy-to-let purchasers, meanwhile, remains at 30%.

Anything else?

Yes. Separated or divorced people may now be considered first-time buyers as part of a ‘fresh start’ principle, so long as they no longer have an interest in their previous property. 

Meanwhile, homeowners living in their first property can be considered still as first-timers should they wish to top up their mortgage in order to release more funds, for a house extension for example.

Why change the rules now?

That’s a good question, given the dysfunctional nature of Ireland’s housing market at present, and also given the Central Bank had made no secret, up to now, that changes to the rules weren’t on the table, for our own good. The regulator said the changes have been 18 months in gestation and that they recognise that the housing market in Ireland has changed structurally.

Will it help?

Fingers crossed. In theory, it should give borrowers more funds, more bargaining power, and therefore more freedom, but Ireland’s housing market has consistently fallen below expectations in recent years in terms of spiralling prices. 

We won’t be holding our breath.