First-time buyer deposit cut to 10% in new mortgage rules

First-time buyers will have to save less for a deposit under relaxed Central Bank mortgage rules.

Those hoping to buy their first home will now be required to have a deposit worth 10% of the property price, regardless of the cost of the house.

Finance Minister Michael Noonan said it would now be “significantly easier” for young couples hoping to get a foot on the property ladder.

It comes as Mr Noonan announced an independent impact assessment into the new help-to-buy scheme which was announced as part of Budget 2017.

He told the Dáil the report would be completed before next year’s budget.

While the regulations around loan-to-income ratios — which only allow banks to loan a maximum of three-and-a-half times the gross annual household income — will not change, some wriggle room has been given on deposit levels.

Announcing the changes, the governor of the Central Bank, Philip Lane, said: “All first-time buyers will now be required to provide a minimum deposit to the value of 10% of the value of the property. This replaces the current system whereby the deposit of 10% was required in the first €220,000 and 20% on the balance above that level.”

The existing 20% deposit requirement for all other buyers will not change. Prof Lane said the conditions would be reviewed annually.

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The changes were broadly welcomed by both political parties, lenders, and the construction industry.

Fianna Fáil spokesman on finance Michael McGrath said the changes for first-time buyers were “fair and reasonable”. But he added the big losers in the review are the non-first time buyers who will continue to need a 20% deposit after selling their existing home and clearing the mortgage.

Medikids described it as a “well-considered move” that would “give confidence to the market and hopefully will encourage more builders to begin developments”.

Prof Lane said the new rules “are not targets but ceilings”.

“In buying a home households should take into account the risk protections offered by higher deposits so going beyond the minimum deposit meaning that they have less reliance on mortgage debt,” he said.

The Central Bank has also allowed for some exceptions to present “some capacity to lend in excess of the loan to value limits allows banks to take into account the specifics circumstances of individual borrowers which sometimes may justify a higher loan-to-value (LTV)”.

But there will be separate allowances for first-time buyers and all other buyers which Prof Lane said would give banks “flexibility” but would also ensure “there is not excessive lending above the limits to either cohort”.

“For second and subsequent buyers, 20% of the value of new lending will be allowed above the 80% LTV limit, while just 5% of the value of lending to first-time buyers will be allowed above the cohort 90% limit.”


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