Ireland’s central bank eases tough mortgage limits

DUBLIN, Oct 19 (Reuters) – Ireland’s central bank will ease mortgage limits to allow first-time buyers to borrow up to four times their income, which it says could help cope with growth in construction costs, but could also modestly push up prices.

The central bank introduced limits in 2015 capping the amount banks can lend for the purchase of a home relative to its value and the borrower’s income in a bid to prevent a repeat of the excessive lending that has devastated the economy more than ten years ago.

Central Bank Governor Gabriel Makhlouf said an increase in financial stability in Ireland since then had given the bank room for “targeted recalibration”.

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Lenders can now only offer loans up to 3.5 times the income of first-time buyers. This figure is expected to quadruple from January, the bank said. The 3.5 times limit will remain for other buyers within the strictest limits of the European Union.

The bank also raised the loan-to-value limit for second-time buyers to 90% from 80%, bringing them in line with current limits for first-time buyers.

Makhlouf told reporters the changes would make buying a property a bit easier for first-time buyers.

He said, however, that the changes were aimed at managing financial stability, not increasing supply.

Rising interest rates, which raise the cost of mortgages, were not a factor, he said, adding that the changes could result in a “modest increase” in house prices.

The central bank has come under fire from some politicians for letting many trapped youngsters spend far more of their income on rent than the rules deem viable for a mortgage application.

The central bank’s director of economics and statistics, Mark Cassidy, said the impact of the changes on housing supply would likely be “marginal to negligible”.

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Reporting by Conor Humphries and Padraic Halpin Editing by Nick Macfie and Peter Graff

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