The Central Bank has announced changes to its mortgage measures framework, following its December 2021 consultation (for more information on that consultation, read our December 2021 insights here: Mortgage Measures: Central Bank consults on potential 2022 changes).
From 1 January 2023, the following changes will apply:
First-time buyers (FTBs)
- Criteria: the criteria for a borrower to be considered an FTB for the purposes of the mortgage measures have been adjusted so that borrowers who are divorced or separated or have undergone bankruptcy or insolvency may be considered FTBs for the purposes of the mortgage measures (where they no longer have an interest in the previous property). FTBs who wish to refinance their mortgage on the same property, provided the property remains their principal private residence, can also continue to be considered FTBs.
- Loan-to-income (LTI) limit: as expected, this will increase from 3.5 times income to 4 times income.
- Loan-to-value (LTV) limit: this will remain at 90%, so a 10% deposit will still be required.
Second and subsequent buyers (SSBs)
- LTI limit: will remain at 3.5 times income.
- LTV limit: will increase from 80% to 90%, so that a 10% deposit will be required rather than a 20% deposit.
Buy-to-let (BTL) borrowers
- No changes: the 70% LTV limit will continue to apply, so that a 30% deposit will be needed. BTL borrowers are not subject to an LTI limit.
Allowances
- The allowances (i.e. the proportion of lending allowed above the limits) will now apply at borrower-type level (e.g. FTB) rather than the individual limit (e.g. FTB LTI).
- The Central Bank expects the changes to the LTI limit for FTBs and the changes to the LTV limit for SSBs to reduce the importance of the allowances.
- 15% of FTB lending will be able to take place above the limits.
- 15% of SSB lending will be able to take place above the limits.
- 10% of BTL lending will be able to take place above the limits.
Exclusions
The same exclusions will continue to apply i.e.:
- BTLs will be exempt from the LTI limit.
- Switcher mortgages will be exempt from the LTV and LTI limits.
- Lifetime mortgages will be exempt from the LTI limit.
- Negative equity mortgage will be exempt from the LTV limit.
Carry-over
The carry-over system introduced in 2021 (which allows lenders who have un-allocated allowance lending in a given year to use this in the first half of the following year (provided that such lending was fully approved in the previous year)) will continue.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
