The Central Bank is playing catch-up and will likely be forced to review the mortgage rules again next year to help first-time buyers qualify for home loans, mortgage brokers have said.
It comes after the regulator changed the amount first-time buyers can borrow from 3.5 to four times household income following a major review of its mortgage measures.
The income limit for second and subsequent buyers continues to be set at 3.5 times, but they can borrow up to 90% of the value of the property. There were other measures to help banks better manage the amounts they are allowed to lend to home buyers.
The rules were first introduced in 2015 in the wake of the disastrous collapse of Irish property prices following a credit-fuelled boom. The Central Bank received 4,000 submissions as part of its review.
Mortgage brokers welcomed the new measures as helping first-time buyers, currently paying large amounts in rent, to secure mortgages that were increasingly becoming out of their reach as interest rates and house prices rise.
Senior mortgage broker Michael Dowling, who helped write a submission for an industry group, said he was pleased the Central Bank had listened to industry participants, but added the regulator will have to review the rules next year as interest rates climb further.
Brokers said that they expect affordability issues only to get worse. “In the current environment, it should be reviewed more than if we were going through a normal economic market," said Rachel McGovern, director of financial services at industry group Brokers Ireland. She said she would welcome allowing first time-buyers to be able to borrow up to 4.5 times their gross income.
Trevor Grant, chairperson of the Association of Irish Mortgage Advisors, said the mortgage rules should be reviewed when necessary, but added that it was “too early” to think about a further review. Mr Grant also took part in the public consultation for the review.
The Central Bank also updated its definition of what it means to be a first-time buyer. It now includes divorced or separated people or those who have undergone bankruptcy or insolvency in cases where they no longer have an interest in their previous property.
People who get a top-up loan or re-mortgage with an increase in the principal may also be considered as first-time buyers, provided the property remains the primary home. The Central Bank has insisted that the changes were here to stay, even if the European Central Bank cut interest rates in the future.
“My gut feeling, from experience, is that these measures will last longer than changes to monetary policy made by the ECB,” said Central Bank governor Gabriel Makhlouf.
The changes are the result of a year-long review into mortgage lending by the Central Bank and are expected to come into effect by January 2023.
Some analysts have said the measures will fuel demand and only drive house price inflation. “These measures are about financial stability. They are not about controlling house prices,” said Mr Makhlouf.