The Central Bank is examining a special measure to help first-time buyers as it moves to recast contentious mortgage restrictions aimed at damping down the property market.
The talks centre on introducing a lower loan-to-value (LTV) limit for first-time buyers than the limit applying to other buyers. It remains unclear whether such measures would be confined to houses and apartments in a certain price range, with bigger deposits required for first-time buyers for loans for more expensive homes.
Research suggesting first-time buyers are less likely than second-time buyers to default on a mortgage is under scrutiny as Central Bank officials work to refine the plan.
The bank signalled three months ago it would introduce new lending restrictions which could require home buyers to have a deposit of 20 per cent of the purchase price, but there is little prospect of its original proposal remaining intact.
Higher deposit
A further step to refine the proposal would be to phase in the requirement for a higher deposit. If this approach is taken, a 15 per cent deposit would be required once the plan goes ahead in coming weeks, and the threshold would rise to 20 per cent over three or more years.
Such proposals have the support of the Department of Finance, which sought a “graduated” application of loan limits in a submission to the bank.
However, there are concerns a scheme of that kind could distort the market, with home buyers and banks rushing to complete transactions every time LTV limits decrease.
Formerly, Irish home buyers were able to get a 90 per cent loan, which rose to up to 100 per cent during the bubble. The Central Bank plans to cut this to 80 per cent in steps from an initial 85 per cent.
It is not known whether Central Bank officials favour a two-pronged reworking of the plan, embracing a special LTV limit for first-time buyers alongside the phasing-in of a lower LTV threshold for others.
Limit of 80%
An alternative is to introduce the concession for first-time buyers but proceed with the 80 per cent LTV limit for others.
The Central Bank commission, the bank’s controlling board, meets next Tuesday in anticipation of a final agreement. A package of measures would be then released on Thursday or Friday of next week for execution soon afterwards, it is understood.
No change is anticipated to the proposal to place a 60 per cent LTV threshold on loans to buy residential property as an investment. This means potential investors will need a 40 per cent deposit. Neither is any change anticipated to the proposal to impose an income threshold of 3.5 times earnings on the size of a mortgage loan.
The commission’s meeting follows controversy over the bank’s proposal in October. The basic objective is to avert the threat of a new price bubble. But the plan prompted complaints that young people whose parents do not have the money to fund a big deposit would never be able to save enough to buy their first home. The argument has been advanced that people who pay high rents would find it especially difficult to raise a deposit.
