First-time buyers now permitted to borrow up to four times their income before tax

The changes apply to first-time buyers only, with second and subsequent purchasers still limited to borrowing 3.5 times their income. File picture

The Central Bank has announced changes to its mortgage lending rules which will see first-time buyers able to access additional bank funding equivalent to half their salary from next year.

The move, announced following what the regulator described as a “comprehensive review”, will see first-time buyers permitted to borrow up to four times their income before tax — an increase from the 3.5 times figure that previously applied.

For a couple earning €100,000 jointly, the funds they will have access to will increase from €350,000 to €400,000. A solo buyer meanwhile on €50,000 would now be able to borrow €200,000, as opposed to €175,000 previously.

The changes apply to first-time buyers only, with second and subsequent purchasers still limited to borrowing 3.5 times their income.

A number of other changes have also been implemented, with loan-to-value ratios for second-time buyers easing from 80% to 90% — meaning only a 10% deposit is required for such a purchase in line with first-time buyers. The level of ‘exemptions’ to the rules — previously 20% for first-time buyers — is tightening somewhat to 15% for all purchasers.

That means that banks have more limited discretion now to offer larger mortgages to all buyers relative to what they qualify for under the rules.

Furthermore, separated or divorced people may now be considered as first-time buyers under the ‘fresh start’ principle, while homeowners seeking to top up their mortgage may do so under the new rules providing the loan still applies to their principal residence.

Sinn Féin’s finance spokesperson Pearse Doherty said that the rule changes serve as a reaction to failures in the Government’s housing policy.

The Central Bank said that the decision, the first change to its rules since its inception in 2015, had been arrived at following a public survey which received more than 4,000 responses.

“We have listened and learned,” the regulator said in a statement.

The move represents something of an about-turn for the Central Bank, which had previously resisted all efforts to have it relax its rules in the face of Ireland’s volcanic housing market, with the chief argument for the status quo being the rules prevented people from borrowing beyond their means.

Sinn Féin’s finance spokesperson Pearse Doherty said that the rule changes serve as a reaction to failures in the Government’s housing policy.

Mr Doherty, who earlier this year told the Irish Examiner that his party would not seek to interfere with the regulator’s mortgage rules, told RTÉ’s Today with Claire Byrne that it is not acceptable that people had to borrow €400,000 to buy a house in Dublin, and that they should not be in this position.

Mr Doherty said that the situation is not a normal one and normal rules do not apply.

Housing supply needs to increase, he said, so that prices would be reduced, and people could get on the property ladder. “We shouldn’t be in this position,” he said.