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The Central Bank’s mortgage lending rules have been mentioned nearly as much as a certain wannabe wall-building US presidential candidate in the media over the last few months, and they’re nearly as controversial!
Whether they’re being blamed for the rising cost of housing or endless traffic jams on the M50, it seems that everyone has an opinion – and often a very negative one – on the rules, which were introduced in February 2015 to take the heat out of the Irish property market.
Well, everyone now has a chance to have those opinions heard. Until August 31st, the Central Bank is welcoming submissions from the public via www.centralbank.ie that will inform its review of the rules, which is due to be published in November.
If you have been frustrated by tough deposit requirements, rising rents, high house prices, or even those long traffic jams on your commute to work, you might be able to make a case for the rules being changed, which the Central Bank would like to hear.
The Central Bank’s rules require a deposit of 20% from most prospective house buyers, which is a big ask for the majority of people. First-time buyers ‘only’ have to provide a deposit of 10% for the first €220,000 of a house’s value, but 20% is required for whatever amount of the value exceeds that threshold.
Considering the fact that the average asking price for a 3-bedroom semi-detached house in Dublin is now €285,000, there aren’t many first-time buyers in the capital who will be able to compete for a house of this size without parting with more than a 10% deposit.
In fact, a deposit of €35,000 would be required for a property of this value. And there certainly aren’t many people who have that type of money lying around, evidenced by the fact that the average age of a first-time buyer in Ireland recently rose to 34.
These tough deposit requirements are forcing more and more people away from cities and out towards commuter belts in search of more affordable rent and house prices.
And what effect does this have? You guessed it. Price increases. It’s the terrible beauty of supply and demand, you see. It was just revealed this week that rents in commuter towns that are within driving distance of Cork, Dublin, Galway and Limerick have increased by 19% over the past 12 months.
In our experience as mortgage introducers, we are seeing more and more people finding it extremely difficult to save the deposits now required to purchase a house, particularly if they are non-first-time buyers.
If you raise concerns about these deposit requirements to the Central Bank, let’s just say you won’t be the only one.
The second key aspect of the Central Bank’s controversial rules is the restriction of the loan-to-income ratio for prospective buyers.
Since February 2015, a person looking to buy a new house or apartment can only borrow three and a half times their annual salary from a lender. And that mainly refers basic salary, as commission and bonuses may not be taken into account.
Considering the fact that the national average annual salary stands at about €37,000 and the average asking price for a property is currently €208,000, there aren’t too many options out there for individuals who are looking to buy a house or apartment by themselves.
In Dublin, matters are all the more challenging with the average price of a semi-detached 3-bedroom house now at €285,000, as mentioned previously.
House prices have risen by an average of 7.1% nationwide in the 12 months to April, which has effectively priced large swathes of the population out of owning a home.
And that leaves them with little choice but to rent…
Earlier this month, the cost or renting in Dublin rose above the peak levels seen during the boom.
The average monthly rent being paid in the capital now stands at €1,454, which is enough to eat up a big chunk of the average monthly pay cheque and wipe out any opportunities for savings set aside for a deposit.
It’s a similar story outside of Dublin, with the average rent outside the capital seeing an increase of 0.9% over the first quarter of the year.
All in all, rents were up by an eye-watering 8.6% between the first quarter of 2015 and the same period in 2016.
The tough deposit requirements set out under the Central Bank’s lending rules leave many families and prospective first-time buyers with no option but to rent, which has the effect of inflating rents further and thereby making it even harder to save for a deposit.
So, if you’ve found that the money you’re supposed to be saving for that big deposit on a house is being diverted to your landlord’s pocket, you should consider voicing your criticisms of the current property ecosystem to the Central Bank.
The Central Bank’s lending rules have placed a strict limit on the amount of money a person can borrow for a mortgage, and have thereby protected individuals from borrowing more than they can realistically afford to repay in the long term.
With the harrowing memories of the 100% mortgages at 5 times a person’s annual income that helped sew the seeds of the property market collapse all too recent, there are many analysts who agree that the rules have a vital role to play.
But with tough deposit requirements leaving a lot of young families and would-be first-time buyers with no option but to rent, the cost of doing so inevitably rises. The impact of this is two-fold: it makes it even more difficult for prospective buyers to meet the Central Bank’s deposit requirements and it attracts wealthy investors, who see an opportunity to make a healthy profit from the rising rents. And this increased demand from investors forces house prices up.
If you’re one of the many people who feels that the Central Bank’s lending rules are doing nothing more than perpetuating an unsustainable system and trapping prospective first-time buyers in an increasingly expensive rental market, then you have an opportunity to have your voice heard.
Conversely, if you think the rules serve an important role in regulating a housing market that has a record of overheating to catastrophic levels, you too can have your voice heard of course.
Whatever your view, the Central Bank is essentially inviting everyone to what might be one of the most important meetings concerning the Irish property market in recent memory. Don’t let your voice go unheard.
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