Housing prices in Ireland continue to rise, the Central Bank is called to take action. The bank has limited the size of mortgages given to people buying a home, leaving many people frustrated.
The lending rules restrict people or couples from borrowing 3.5 times their collective income. In addition, first-time buyers must reach a minimum deposit of 10% to get a mortgage but subsequent buyers must need a minimum deposit of 20%.
Ireland Thinks took a poll of 1,274 people on June 19th to demonstrate how people felt about these new rules. The poll shows that there are differing views. The polls show that people are split down the middle in regards to whether or not they agree with the rules. To be more specific, 47% of people agree, 47% do not agree, and then 6% were unsure which side they were on.
Another part of the Central Bank’s efforts to promote stability after the housing crash and banking crisis that is more controversial is the new limit that is placed on the money prospective homeowners can receive from parents to buy a home. The results of this poll were not as 50/50. When asked whether there should be a limit, only 13% of people were in favor.
Options for those affected by new rules
For those who see the rules as too restrictive, the introduction of long-term mortgages could potentially help you qualify for a bigger home loan. In applying for a loan, the mortgage stress test requires banks to determine if a borrower can make their payment at a rate that is higher than what is actually paid. In other words, your income needs to be high enough, in addition to your existing debt low enough, to be able to pay down your mortgage at a higher rate.
Opting for a long-term mortgage is a way to get around stress tests due to the Central Bank’s belief that stress tests don’t apply when mortgages are fixed for 5+ years, meaning that there is a possibility of getting a larger loan.
While this is a great option, there are downsides. One negative is that rates can fall over time ultimately leaving you to owe more. In addition, fixing it for a long time can limit your options for switching since there is a pretty hefty break fee for leaving a fixed long-term mortgage.
Every situation is different, so you should look into what option suits your needs the best.
Duffy, Rónán. “People Split on Mortgage Lending Rules but Strongly Opposed to Limits on Inheritance from Parents.” TheJournal.ie, www.thejournal.ie/mortgage-rules-3-5477559-Jun2021/.
Reddan, Fiona. “Struggling to Buy a Home? Long-Term Mortgage May Suit Those Who Cannot Pass Income Rules.” The Irish Times, 6 July 2021, www.irishtimes.com/business/personal-finance/struggling-to-buy-a-home-long-term-mortgage-may-suit-those-who-cannot-pass-income-rules-1.4609840.