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Central Bank’s new rules for mortgages – just the thing to burst the bubble, but 10 years too late


No doubt your Twitter newsfeed and the breaking news websites are a-buzz today with the Central Bank of Ireland’s new rules for Loan to Value (LTV) rates for residential borrowing.

99.9% of the commentary is about the difficult situation the new rules put first-time buyers in, particularly those purchasing in the Dublin area and other parts of  Ireland where property is expensive, which includes parts of Kildare.

Just in case you haven’t got the detail:

  • First-time buyers will have to produce 10% LTV if the property they are buying is under €220,000, and 20% if it’s over that. I don’t have to point out that finding a suitable home for under €220,000 is a tall order in many parts of Dublin.
  • Home owners trading up will have to raise 20% of the value of the property they wish to buy.
  • And the third category is the investor. Buy-to-let mortgages will be capped at 70% of the value, requiring a 30% deposit to be stumped up by the purchaser.

Does nobody care about the investors?

Peter Flanagan of the Independent wrote the single editorial on how the new rules affect investors. So why is nobody bothered about this?

You can read Peter’s article here.

His principle point is that so many investors in residential property are in arrears that there is no appetite for this type of mortgage. It might as well be 40% LTV for all the difference it will make to demand.

I’m inclined to agree with Peter Flanagan. The buy-to-let strategy is rare among people with money to invest. With PRSI and USC now payable on income from rent, being a landlord, whether part-time or full-time, is not an attractive prospect.

This move plays into the hands of asset buyers

But back to the first-time buyers: you don’t have to be a property expert to figure out that the requirement to raise up to 20% as a deposit will prove a deterrent to purchasing. This plays right into the hands of national and international asset buyers. If raising 20% of a €300,000 property next week, as opposed to just 10% this week, is going to set back by a couple of years a first-time buyer’s plans to purchase, what choice will they have but to continue renting? With rents already sky-rocketing, won’t this increase in demand drive rents up even higher?

Investment firms with major residential property interests here will be rubbing their hands together with glee.

€220,000 seems a low threshold

It’s not just Dublin-based first-time buyers who will be adversely affected by the new rule. A quick check of for properties in Naas under €220,000 revealed just 17, almost half of them 2-bed apartments. While it is a foot on the ladder, a two-bed apart is not everyone’s ideal first home. Around a quarter are townhouses, which typically don’t have a private garden, an important feature for families with young children.

17 properties in the greater Naas area qualify for the 10% LTV. Any residential estate agent in the town will tell you that simply isn’t enough to satisfy the demand. The other several hundred will be forced to put off the purchase until they save the extra 10% of a €220,000 plus property.


I can’t see how they will aid the housing market in Ireland. As everyone from Marie Hunt to Marian Finnegan has said, the mini bubble is a question of limited supply and these new rules about deposits for mortgages will not only fail to increase supply but may in fact curtail it.

Take Kildare. Would you, as a developer, embark on a development, knowing that by the time you pay the costs associated with planning permission, pay all the fees and levies, do the construction, market the development and so on, you won’t be able to deliver a house selling for under €220,000? You would therefore be proceeding with the development on the basis that the first-time buyer is ruled out. Of course you’d have other groups in your sights, not just first time buyers, but because of the rules affecting second-time buyers, the market in general will have been dampened.

If developers all over the country are thinking that way, we’re not going to see the new builds we need to solve our supply problems.

Of course it’s not the job of the Central Bank to stimulate building, but it should be the government’s. So where are the policies to address the supply issues?



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