Types of mortgages and lending rules

Irish law has specialized sets of lending rules depending on the type of mortgage application. Types of applications are split into three different categories: first-time buyers, remortgaging or switching, and buy-to-let buyers. Depending on which of these categories an application falls under, different loan-to-value (LTV) and loan-to-income (LTI) limits will be used. The former refers to the minimum deposit a borrower must have on a home before getting a mortgage loan. The latter refers to the maximum amount of money borrowers can receive in relation to their yearly gross income; while this is normally capped at 3.5 times one’s income, lenders can provide additional allowances of varying amount depending on the type of application.

Firstly, there are first-time buyers. These applicants are those buying a house for the first time, so the deposit required by LTV limits is understandably less steep. They will need to have a minimum deposit of 10% of the home’s total value. For example, if the price of a home is listed as €250,000, a 10% deposit would amount to €25,000. Lenders are allowed to have 5% of mortgages to have a minimum deposit of less than 10%. The LTI limits on such an applicant are 3.5 times gross income, with lenders being allowed 20% of mortgages to be above this cap. This amount is higher for first-time applicants as it might be assumed that they are in need of the extra funds to get settled.

The next category is second and subsequent buyers, or those who have bought a home before. Since such a buyer should probably be more financially established, the minimum deposit required is higher than for first-time buyers. Second and subsequent buyers will need a deposit of 20% of the value of the home. Similarly, the allowance lenders can provide under LTI limits is less generous: only 10% of mortgages are allowed to exceed the 3.5 times gross income cap.

The last category is buy-to-let buyers. This refers to those buying homes with the express intention of renting them out to others. As such a buyer would be a landlord, it is assumed that they have even more financial security than second and subsequent buyers. As such, they have the highest LTV minimum deposit: 30% of the value of the home, though for banks 10% of those mortgages can have a lower deposit. The tradeoff here is these mortgages are not subject to any LTI limits.

These rules have been in place since 2015 and will likely hold for the foreseeable future. The Central Bank’s 2020 review of these measures determined that they were still working as intended, so they have remained unchanged. Those seeking a mortgage of any kind should familiarize themselves with the appropriate LTV and LTI limits, so they can plan their financials accordingly.

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