New Homes: First-time buyers will welcome new lending rules
Under new lending rules, since January first-time buyers can borrow up to four times their annual gross salary.
The high priests at the church of national finance that is the Central Bank have finally answered the prayers of the masses of people looking to become first-time buyers in this country.
They have changed the lending rules when it comes to how much people can borrow to buy their first home. Up to the 31st of December last, any individual first time buyer could borrow a sum of no more than 3.5 times their annual gross salary. Since the 1st of January, that has been increased to 4 times their annual gross salary.
In fairness to the Central Bank, the situation is a delicate one. On the one hand, the rising house prices mean that the rules had to change to some degree in order to allow people to borrow enough to buy their own home. On the other hand, it can be a tricky inflationary ‘arms race’ to get involved in and the last time that Central Bank lending rules were relaxed, it contributed to over-inflation in the market and, ultimately, the collapse of the housing market in 2007/08.
“With the various schemes on offer, I think that homes are becoming more affordable in certain cities and certain parts of the country,” says Pat Davitt, CEO of the Institute of Professional Auctioneers and Valuers (IPAV).
“This is good and the Central Bank have changed their rules to four times a person’s gross salary instead of 3.5. It’s not what we hoped they would do. We hoped that they would go to 4.5, but it’s obviously helpful and we’re delighted with that because it gives people with a smaller income a better opportunity to get a mortgage to buy a new home.”
Along with this principal change, the Central Bank has also introduced a few more changes in their lending rules policy. Second-time buyers will still be limited to the 3.5-times rule, but they will now be able to avail of the LTV (Loan-to-Value) ratio of 90%. This was previously only limited only to first time buyers.
They have also introduced the notion of a “fresh start” — allowing for the first time, people who are making a fresh start later in life to be treated as first-time buyers. The “fresh start” people are those who have come through a divorce or who have come through a period of insolvency.
So, have the new measure made an impact on the state of the market and on the welfare of the home-buying public?
If the early indications of the year so far are anything to go by, things are going well, according to Elizabeth Hegarty, associate director of Savills New Homes.
“We had a very good end to last year,” says Elizabeth. “It was a very good year for sales across the board. Since the start of this year, we’ve only done two launches (of new homes) so far. Enquiry levels are strong and it’s only a matter of new stock coming to market. A lot of people are out of the tracks with their mortgage approval and the new four-times lending policy was a huge bonus for everyone.”
Paul Hannon, director of Sherry Fitzgerald New Homes, said: “I suppose that we’ve come back (after Christmas) into a situation that we weren’t sure of. We weren’t sure how things would kick off with rising interest rates and uncertainty worldwide, but the sentiment in the new homes market has been quite good, you’d have to say.
“Post-Christmas, you often get a surge in interest from people thinking about buying their own home for the first time – a bit of New Year’s Resolutions and people deciding that they’re not going to live with Mum and Dad anymore, for example. And the fundamental shift for us in the New Homes market is the introduction of the new four-times-salary rule.
“It was, of course, 3.5 times your gross salary but now it gives people access to more finance and makes the new homes more affordable. The other big change is the First Homes Scheme.”
The First Homes Scheme was rolled out as part of the Government’s grand “Housing for All” plan in July 2022 but, Paul says, it’s only very recently that the uptake on the scheme has become significant.
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