New mortgage guidelines
New Lending guidelines
Discussion document launched by Central Bank with proposals to introduce new mortgage guidelines in Jan 2015
Basic proposals are:
LTV (loan to value limit) = Maximum mortgage of 80% of the purchase price (20% deposit required)
LTI ( loan to income limit) = Maximum mortgage setat 3.5 times gross income
( Lenders will be allowed to exceed these limits on a portion of their book - 20% of their loan book in the case of the gross income limit and 15% of their loan book in the case of loan to value limits.)
None of us want house prices to race away again.The key is finding a reasonable housing market that allows people to buy their own home and live life without the strain of a huge mortgage.
Nor do we want our banks to run into trouble again through imprudent lending. So the new rules are aimed at protecting buyers and the economy and that is good news - very good news. In the long term we believe that broad thrust of the proposals will create a better housing market. The last bubble was caused by over supply of credit and poor regulation. The price of houses is a function of supply, demand, the availability of credit generally and the level of borrowings an individual will qualify for. The Central bank are protecting the common good by limiting borrowing capacity. Supply still remains the missing piece of the jig saw.
The changes to the proposals which we would like to see include the following:
- The deposit requirement should be linked to income. For lower income levels the minimum deposit might be 12.5% rising to 20% for higher income levels
- Lower deposit mortgages should have some form of insurance to cover the margin above 80%. This insurance cover cost should be borne by all borrowers
- Proof of mortgage affordability should be over twelve month period
- The areas of exception ( where the ltv limits and lti limits can be exceeded) could cause concern in terms of market fairness and clear examples of what might fall within these exceptions need to be devised to enhance transparency and avoid unnecessary administration.