ICS Mortgages has announced a string of temporary changes to its mortgage lending policy which will make it much more difficult for first-time buyers and switchers to qualify for a mortgage with the lender.
ICS Mortgages has taken the unusual move of severely tightening its mortgage lending criteria, which all but closes to the lender to new business for now.
The move by ICS to change its lending policy has been taken as a result of ongoing disruption to the international money markets upon which it relies for funding.
We take a look at what's changed...
What criteria has changed?
Perhaps the biggest change announced by Dilosk-owned ICS has been around its mortgage lending limits. The maximum amount someone can borrow is now just two and a half times their gross income. This compares to the three and a half times limit currently set by the Central Bank.
On top of this, single applicants must now have a minimum gross income of €50,000 (€100,000 for joint applicants).
The minimum amount someone can borrow is now €150,000 and the maximum amount is €500,000. This effectively means single applicants will now need an income of at least €60,000 to be eligible for a loan under ICS's new rules.
The maximum loan amount outlined above could also prevent prospective buyers purchasing in the major cities, particularly in the capital where house prices are at all-time highs.
First-time buyers will now also need a deposit of at least 20%, while movers and switchers will need a deposit of 30%. Additionally, there will be no equity release in switcher applications.
Recent figures from the Banking and Payments Federation Ireland show that the average first-time buyer mortgage in Ireland is around €263,000. This means that the average single applicant will now need an income of almost €85,000 to qualify for a mortgage with ICS (in addition to a hefty deposit of at least 20% of the property price).
Other temporary changes include:
- Self-employed applications will be assessed based on directors’ salary/drawings only
- No variable pay amounts will be allowable for PAYE applicants - in other words commission payments and overtime won't be taken into account when assessing your income
- Non-EEA nationals must have three years' evidence of residency and work permits. Stamp 4 holders or above only
Does ICS Mortgages operate differently to other banks?
In short, yes.
ICS Mortgages is a non-bank lender, which means it sources its money to fund loans from international money markets. This is opposed to traditional retail banks such as AIB for example, which are of course funded largely by customer deposits.
As ICS relies on funding from international capital markets, it can leave the company, and others in a similar position, exposed to rising market rates. This seems to be one of the main reasons behind the lender’s decision to restrict its lending criteria, albeit temporarily.
ICS Mortgages said that as soon as markets normalise, it intends to reverse all of the temporary changes.
Regardless of the reasons behind its decision, the move certainly doesn’t seem like it will help competition in the mortgage market.
The latest news from ICS could mean a reduction in competition in the mortgage market.
With ICS effectively closed for business to many first-time buyers and switchers, this potentially gives the main banks such as AIB, Bank of Ireland, and Permanent TSB more power over the market.
It’s also important to bear in mind that both Permanent TSB and Bank of Ireland have already acquired the mortgage books of Ulster Bank and KBC respectively, meaning these banks have already strengthened their hold on the mortgage market in recent months.
Players such as ICS Mortgages and Finance Ireland have arguably been keeping rates low for consumers up until now. However, ICS has increased its rates twice already this year, while fellow non-bank lender Avant Money also recently announced a rate increase on the back of prevailing market conditions and rising interest rates.
And all of this as Ireland still has the second highest mortgage interest rates in the Eurozone, despite mortgage rates decreasing slightly here in the month of June, as reported by the Central Bank.
ICS is also increasing its variable and buy-to-let rates by a hefty 1.25% across all its loan-to-value (LTV) bands from October 1st. This comes on the back of an increase in rates of 0.50% by the ECB last month.
For example, the rate on an owner occupier variable-rate mortgage with an LTV of less than 70% will increase from 2.45% to 3.70%.
The lender said the changes will not impact on the fixed rates of existing customers or customers with a valid fixed-rate loan offer.
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That being said, there is still value to be had if you’re looking to compare mortgage rates. And at bonkers.ie, we’re here to help.
When you’re ready to apply for your mortgage, you can submit an online enquiry through our free mortgage broker service. One of our qualified financial advisors will be in touch to help get your application started.
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Do you have any questions about the changes to ICS Mortgages’ lending criteria? If so, let us know and we’d be happy to help!