The European Central Bank set a ceiling in 2015, allowing borrowers to take out loans from lenders who wish to lend them up to 3.5x their income. However, the ECB recently declared that as a borrower, you may request 4x your income. The loan-value caps will remain the same as before the change, so first-time buyers will be able to borrow 90% of the property’s value, while second-time buyers will be able to borrow 80% of the property’s value.
One unique suggestion received by the ECB was that borrowers earning less than €60,000 be able to obtain a loan of up to 4.5x their income. After the rate crash, the mainstream banks removed development lending. Thus, smaller builders needed alternative finance providers to realize some projects because the extent of the limits was affecting them. Clients now have their own criteria for obtaining a mortgage due to domestic inflation (which was 8.6 percent in September), rising cost-of-living crises, and rising interest rates on loans.
ICS Mortgages, a non-bank lender, tightens its loan acceptance criteria. So, if you take a loan there, you can simply borrow 2.5x your income. If you are a first-time buyer, you will need 20% of the property’s value. However, movers have 30% of the property’s value.
Aside from this, ICS requires new customers to show proof that they have €1000 in their bank account each month, excluding monthly living and mortgage payments. They want this as security that you can pay off a new home loan. Finance Ireland also advocated for stricter guidelines for borrowers. They want every customer to have a monthly buffer of €250 to secure the loan. As a result of the ECB raising rates to 1.25 percentage points since July, non-bank lenders (ICS, Finance Ireland, and Avant Money) increased their costs. AIB is the first mainstream bank to raise interest rates in response to the situation for new fixed-rate loans.
The definition of a first-time buyer has also changed as per the ECB. Anyone who has never owned a home before is no longer the only thing to be considered for a first-time buyer. Anyone who has been divorced and is no longer interested in the old house, or who has been bankrupt and lost their fortune, can now be a first-time buyer.
Consequently, you are eligible for a second chance under the same terms as a “real” first-time buyer. The financing can then be obtained with just 10% of the cost of your new property (and you must fulfill the special criteria of the bank where you get the mortgage). Additionally, the new mortgage regulations (which allow borrowers to receive loans for 4.5x their income) are only applicable to first-time buyers.
This post was written by Jo Marie Fuchs who was a research intern at Irish Mortgage Brokers in October of 2022.