Recently released figures for new Irish mortgages show that in 2014 loans to the value of €3.65 billion were advanced to 20,155 borrowers for house purchase. This is a substantial pick-up in the value of mortgage lending for house purchases, up 55% from the €2.4 billion recorded in 2013.
Overall there was €9.2 billion, or 42,549, residential property market transactions in 2014, representing 2% of the housing stock in the country. However, the Irish market is still exceptionally illiquid, with loans harder to get and it also implies that cash buyers still account for over 50% of housing market transactions in 2014.
The final quarter of 2014 saw a surge in residential property market transactions to €3.2 billion. Many transactions were probably rushed through before the end of capital gains tax exemptions, of which mortgages accounted for €1.3 billion. Mortgage lending may also have been helped by some borrowers deciding to purchase before the implementation of Central Bank lending rules.
On 11th February 2015, the Central Bank of Ireland [CBI] announced the introduction of the new Lending Regulations that are effective from 9th February 2015. The changes are as follows:
Loan to Income (LTI) 3.5 times annual income – The CBI has introduced Loan to Income (LTI) as an affordability metric to be used going forward and has set a limit of 3.5 times gross income on the Mortgage amount allowed. In assessing affordability, Lenders will likely continue to use an applicant’s net disposable income (NDI) and Mortgage Service Ratio (MSR) as per current thresholds and policy as well as capturing and assessing LTI.
Loan to Value (LTV) – A First Time Buyer can borrow 90% of the purchase of a property costing up to €220,000 and where the purchase price is in excess of €220,000 they can borrow 80% of the additional cost.
A Second Time Buyer can borrow 80% of the purchase price of a property.
The question now is how quickly lending and transactions may slow in early 2015 after the CBI changes and the enormous pick-up towards the end of 2014.