Central Bank statement on mortgage rules review

23 November 2016

Outcome of Review of Mortgage Measures announced

§  Review confirms that the overall framework is appropriate and the measures have contributed to financial and economic stability.

§  Review based on extensive analytical work and public consultation.

§  Refinements to improve the effectiveness and sustainability of the measures.

*** More detail at press conference today at 14:30***

The Central Bank of Ireland today (23 November) announced the outcome of the review of the mortgage measures, following an extensive consultation and evaluation process. The mortgage measures were introduced in February 2015 to enhance the resilience of both borrowers and the banking sector.

The review affirms that the overall framework is appropriate and the measures are contributing to financial and economic stability, reducing the risk of unsustainable lending and borrowing.

Following the review, the framework is broadly unchanged. The 3.5 times ceiling on the loan to income (LTI) ratio remains. Requirements for buy to let borrowers and the exemptions for negative equity mortgage borrowers from the measures also remain unchanged.

The review identified a number of refinements to improve the …

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New build a loser?

Banks are now reducing the LTV they will offer for new build properties but not in the second hand market and today we will look at why they might do this.

To begin with there is the rationalising of price in new build developments, that doesn’t mean the prices won’t drop further, it means that many builders are pricing to the market and not to what they want them to be worth. This however, is a tricky proposition for banks who may be lending on said properties.

Imagine this, ‘Phase 1 selling from €365,000’, now just over a year later ‘Phase 2 selling from €250,000’ and these are basically identical or comparable properties. Values are (in essence) set by what a person is willing to pay for an asset, and in this example the properties are all now worth €250,000 irrespective of what price they sold at. This means the banks security has just dropped by a similar amount.

The market is witnessing the most spectacular falls in the new build area, thus banks …

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