Last week, The Central Bank made changes to the controversial lending rules introduced back in April 2015, and thankfully they should make it much easier for first time buyers to gather a deposit to purchase a new property.
Previously, a first time buyer was allowed to borrow 90% on mortgages up to €220,000 with 80% allowed on the balance.
What that meant was that if a property was costing €350,000, they needed 10% on the first €220,000 i.e. €22,000 and 20% on the remaining €130,000 i.e. €26.000. That meant a person buying a property costing €350,000 would need a deposit of €48,000.
New Rule
Under the new rules, which take effect from January, that same person would require a deposit of 10% on the full cost of the property. Meaning that if they buy a property now costing €350,000 they would need a deposit of €35,000 meaning they have to save €13,000 less than before.
Help to Buy Scheme
And the deposit required could be even less than that, because under the help to buy scheme for first time buyers announced in the budget, a 5% refund on the purchase price of a property, up to a maximum refund amount of €20,000 would further reduce the deposit required.
Old versus New
The difference 18 months makes in terms of how much savings a first time buyer is required to have is significant, and below is an example of this, assuming a new property costing €350,000
April 2015
|
Purchase Price |
90% of €220,000 |
20% on €130,000 |
Help to buy scheme |
Deposit Required |
|
€350,000 |
€22,000 |
€16,000 |
€0 |
€38,000 |
Deposit required as a % of purchase price – 11%
January 2017
|
Purchase Price |
90% of €350,000 |
Help to buy scheme |
Deposit Required |
|
€350,000 |
€35,000 |
€17,500 |
€17,500 |
Deposit required as a % of purchase price – 5%
Any other changes
Yes. Previously, banks were allowed to breach the Central Bank’s lending guidelines by 15% of its total lending, meaning it could if it wanted to lend 92%, 95% or even 100% of the purchase price to a borrower. The % of their total lending that can be apportioned to mortgages outside the CB’s new guidelines is now just 5%.
Non-First Time Buyers
The previous rules that were implemented remain the same i.e. non first time buyers have to come up with a deposit of 20%.
However, banks can lend more if they want to and 20% of their overall lending can exceed the 80% limit.
And finally, the 3.5 times ceiling on the loan to income ratio remains unchanged.
Below is an example of how much a deposit is required for first and second time buyers based on three different scenarios.
|
Purchase Price |
CB Deposit Requirements |
Qualify for help to buy scheme |
Net Deposit Required |
|
|
First Time Buyer |
€200,000 |
€20,000 |
Yes |
€10,000 |
|
Second Time Buyer |
€200,000 |
€40,000 |
No |
€40,000 |
|
Purchase Price |
CB Deposit Requirements |
Qualify for help to buy scheme |
Net Deposit Required |
|
|
First Time Buyer |
€300,000 |
€30,000 |
Yes |
€15,000 |
|
Second Time Buyer |
€300,000 |
€60,000 |
No |
€60,000 |
|
Purchase Price |
CB Deposit Requirements |
Qualify for help to buy scheme |
Net Deposit Required |
|
|
First Time Buyer |
€400,000 |
€40,000 |
Yes |
€20,000 |
|
Second Time Buyer |
€400,000 |
€80,000 |
No |
€80,000 |