New Central Bank mortgage rules could drive up rents

New Central Bank mortgage rules could drive up rents

The new Central Bank mortgage rules officially came into force yesterday with fears being expressed that it may drive up rents even further around the country.

The new regulations will see buyers forced to save deposits of 20pc of the price of a property before securing a mortgage.

First-time buyers get some reprieve as they will only have to have 10pc of the value of properties worth up to €220,000, however, the 20pc rate applies to the portion of any mortgage over that price.

That will likely lead to more people staying in rented accommodation for longer with a greater demand on already stretched housing resources.

“Our initial views are that the overall effect will lead to potential buyers renting for longer and as a consequence there will be upward pressure on rents especially in the capital,” DNG chief executive Keith Lowe said recently.

According to the estate agents, the average house price in the capital now stands at €373,981, meaning a first time buyer would have to save just under €53,000 before applying for a mortgage for such a home, with a non-first time buyer needing almost €75,000.

That type of money could take years to save, meaning more people could be forced into renting, therefore driving up demand – and therefore prices – for good quality family homes in that sector.

They will cause a wealth divide among families when it comes to housing according to Pat Devitt of IPAV.

“The rules will favour better-off families where parents have the financial strength to support their children,” he said.

“They will confine many, unwillingly, to renting for long periods, pushing up rental costs further,” he said.

  • What impact do you see the new rules having?
  • Would it put you off buying?
  • Is it possible to save while paying ever increasing rental prices at the same time?

Have your say below…

There are 22 comments for this article
  1. Joe at 4:47 pm

    Personally I think a well-thoughtout rent-to-buy type of mortgage scheme would be a good solution to this, as a lot of people, me included, could well afford a mortgage but the ever increasing rent makes it impossible to to save enough for a down payment.

    I’m all in favour of a strict 3.5 combined income cap on mortgages, but if you can’t save enough for a 10% or 20% down payment that’s fairly theoretical anyway.

    No doubt someone will counter with “if you can’t save you shouldn’t be able to buy” but that is besides the point really, as a lot of people could pay a moderate mortgage just as well as they are paying rent…

    Alternatively it should be possible to create a rental market which makes it attractive enough to rent long-term instead of this Irish obsession with owning a house.

    Maybe a model that is used in Sweden could be worth a try, i.e. you buy a 10% or thereabouts share in an apartment and you pay normal rent but effectively it is your apartment and you can’t be evicted provided you keep up with the rent. You can then of course sell your share to whomever wants to buy it, but I think the price is regulated in such a way that it can only increase based on a “construction cost index” which effectively means a very low annual price increase of 1% to 3% or something along those lines. I’m not overly familiar with how this model works, but I believe this is the gist of it.

  2. European at 11:35 am

    I’m sorry to say that but people with negative equity are responsible for this too. Why did you buy something for 500k when you had no savings at all (or less than 10%)? If people could have said no to buy when prices went up they could have stopped it. I’m trying to buy for 2 years, no luck as I was running after the price increase and was bid out several times. (By the way bidding for a property – this was really new to me and didn’t hear any similar before. In other countries buyers never offer more than 90% of the asking prices). I will not borrow more than I think I can afford and yes I do have 20% deposit which I think is the minimum you should have.
    The government can’t save everyone but can learn from the past and prevent this happening again so the new rules are fair. The only thing they should do is to approve more planning permission and help the supply to grow.
    Builders made billions of euros on you guys but nobody blames them?

    • vinny at 2:01 pm

      I built my house in westport in 2009/10 and did 70% of the work myself as im a carpenter/ builder i had a relatively small morgage on it of 238,000 the house would have been valued at over 300000 the n prices crashed i sold it for 215000 in sept last year. I certainly didnt get greedy as i didnt want a massive morgage and feel very let down now as i was close to having 10% .

      • Sus at 3:42 pm

        We had a 15% deposit. We bought a modest two bed apartment in 2005. We didn’t overextend ourselves. We didn’t spend €500k. We never missed a repayment even though we are on standard rate variable, sadly. Are you saying in doing so I’m somehow responsible? Were we supposed to somehow look into a crystal ball and know the price we paid was too high even though we could well afford it at the time (and still can)? We are in significant negative equity despite caution. The power of hindsight is a wonderful thing but don’t blame everyone that bought for this.

        • vinny at 5:27 pm

          Well said

        • European at 9:06 pm

          I’m just saying don’t blame others. I lost money with an apartment in another country because bought in the wrong time. My fault, not the government’s. Nobody forced me to buy it and hope nobody forced you too. Sad situation but the money you paid was probably irrealistic. Houses and apartments here are are very poorly built and still overpriced in Dublin.

  3. Sus at 10:36 pm

    Richard that’s very well put. I think the reality is they, and probably many, don’t care about this section of the citizenry. If you “got in at the right time” before the peak, you are most likely fine now, if you are a first time buyer it’s not easy, but you don’t have the millstone of negative equity around your neck and you may well not have kids yet (which we know effects what you can borrow). For those few in the middle (and it is few as a % of he whole population) many parents have assisted to get them into a family home despite their negative equity. It’s only those left over that are badly affected and the govt, and general population may sympathise (and feel relief it’s not them) but won’t act in our favour as there just aren’t enough of us for it to really matter. So we are left to suck it up yet again.

  4. Freddie at 2:15 pm

    We’re all Doomed, Dooooomed

  5. Chris Clifford at 12:32 pm

    I think its a great idea which will drive house prices down and keep them down. If you can only borrow 3.5 times your combined salary people won’t over expose themselves borrowing and sellers must drop their prices to meet buyers affordability. Its unfortunate for people who bought at the peek of the market but it’s a risk buying anytime as nobody knows wat way the market will go! We can’t afford another property bubble as every person in the country is paying for the last bubble in their pay packet.

  6. Rob at 8:38 am

    If anything the new rules would put me off selling. Why would I sell if I’m faced with new restrictions for my next mortgage and am forced to pay extortionate rent for what mostly are run down sub standard apartments with greedy landlords. Once again the government has not looked at the overall picture and not planned ahead. I read too that construction fell in January! Property is a national obsession in Ireland and will always be. Irish people cannot be rational when it comes to it, it’s in their DNA. The government only did what they were told to do by powers greater than they and they have cooled down the heat in the selling market but only turned it up in the rental market and more people will probably become homeless as a result.

  7. Ross at 6:34 pm

    The 20% deposit and 3.5 times salary rule would have prevented the property pimps from cheerleading the property ‘investment’ madness which lead to destruction of so many people’s lives. About time!

    • vinny at 9:54 pm

      I think the 3.5 times your salary is fair similar to england, but the 20% deposit is ridiculous i sold my house in mayo back in september for a loss of 15000 euro and was planning on buying sometime this year in dublin with my wife and children as thats where our work is now we currently live with my mother inlaw to save money and now these new rules have come in im gonna need minimum 56 grand deposit we will have to go renting as space is tight meaning we will never be able to afford a family home i wish i hadnt sold my house as atleast in 20 years id of had some sort of asset, i feel that i cant provide for my family now! the housing crash raped me and now this

  8. Chris at 4:54 pm

    This could lead to pricing falling, as there are no buyers at the average of EUR 373,000. If sellers want to sell, they have to ask less in order to be affordable within the new mortgage rates.

    • maggie moo at 9:23 am

      It’s true. Prices in South Dublin dropped instantly after the rule was introduced: between 5-25k. It goes to show how unrealistically priced they were when credit was more available. And people would have overstretched themselves if allowed.

  9. ixelles at 4:38 pm

    As a first-time buyer I’m touched by how vested interests in the property industry have come out to bat on my behalf. I thought estate agents and banks and brokers were only in it for themselves. So bad minded…

    Did he say what the changes will do to the price of houses? Maybe if they fall it could soothe estate agents’ concern for first-time buyers who are renting/saving.

    By the way, this section is incorrect:
    “According to the estate agents, the average house price in the capital now stands at €373,981, meaning a first time buyer would have to save around €37,000 before applying for a mortgage for such a home, with a non-first time buyer needing almost €75,000.”

    A FTBer would need a deposit of €52,796.20. As you correctly explained a few paragraphs earlier, it’s 10% of the first 220k and then 20% on the rest.

    Also, banks will in most cases only be able to lend 3.5 x combined income which should keep things at a sensible level from here.

  10. Ian at 3:25 pm

    Those who got caught by buying after 2000 now most likely face a life sentence in the derelict commuter estates that litter the country. Given that houses in these estates (outside Dublin) have seen the sharpest fall and will have the slowest recovery, families caught here will have to wait a long number of years before they can dispose of their houses without a negative balance on their mortgage. Without any equity available in the medium to long term, they will also face finding a 20% deposit on top of mortgage payments. This lost generation will have lost on the up( started families mid to late boom, paid the highest prices) , the down ( will suffer the highest negative equity)and will not participate in the up ( will be to far behind to compete with the next generation).
    Given that most home buyers will buy when they reach a certain age bracket, the cost of being part of this generation is likely to be akin to a life sentence.

    • Sus at 9:26 am

      Ian I couldn’t agree more. The lost generation also applies to the many growing family squashed into small apartments with no way out. These people may never own a family home.

      • vinny at 11:12 am

        Alot of people are marching about the water charges i think we should all march about the new regulations it seems to have been smoke screened on the news

    • Richard at 3:21 pm

      I agree entirely with Ian, Sus and Vinny. The new rules may well have a stagnating effect on the property market because it will prevent the market from ever rescuing those in negative equity so they will be unable to sell, while others who are not first-time buyers will unable to buy or trade up. This in turn will do nothing to increase the supply of property which is needed for all, including first-time buyers. The Central Bank, having failed to regulate during the boom years, is now effectively “bolting the door” after the financial crash and ignoring the plight of those already affected by it. Worse than that, it is trapping such people in their onerous circumstances and condemning them to remain there. We are indeed the lost generation as described and it’s disgraceful that an agency of the State to which we all pay taxes (which have included massive stamp duty in the boom, then the Universal Social charge, property and water charges since then) can abandon a section of its citizenry to their fate in this way.

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