Thursday, 1 April 2021
Department of Finance
72. To ask the Minister for Finance if he will request the Central Bank to enable applicants for mortgages to use their time in rented accommodation as a reference for the ability to service a mortgage; and if he will make a statement on the matter. [17651/21]
The Central Bank of Ireland, as part of its independent mandate to preserve and protect financial stability in Ireland, has statutory responsibility for the regulation of mortgage lending by banks and other regulated entities.
In line with this mandate, the Central Bank introduced macroprudential measures for residential mortgage lending in February 2015. The objective of these mortgage measures is to increase the resilience of the banking sector and households and to reduce the risk of credit-house price spirals from developing. The mortgage measures apply certain loan-to-value (LTV) and loan-to-income (LTI) restrictions to residential mortgage lending by financial institutions regulated by the Central Bank. For primary dwelling mortgages, the LTI limit is 3.5 times the borrower’s income. For first-time buyers (FTBs), the LTV limit is 90% of the value of the residential property and for second and subsequent buyers the LTV is 80% of the value of the residential property. However, lenders have a limited flexibility at their own discretion to provide to provide some mortgage lending in excess of these thresholds.
While regulated lenders must comply with the various rules within the macroprudential and consumer protection frameworks, the extension of credit by lenders to potential customers is a commercial decision for the lender themselves, and each lender will have its own individual credit lending policies. Before providing a mortgage, a lender is required to undertake thorough creditworthiness assessments and satisfy itself about the ability of the borrower to repay the mortgage. This assessment must take into account the individual circumstances of the borrower, including personal circumstances and financial situation. In this context lenders can and do take into account rental payments when making their affordability assessment as part of regular underwriting process to assess borrowers’ ability to repay a mortgage.
However, the significant differences between the nature of a rental contract and a mortgage contract to purchase a home should also be borne in mind. A house purchase and associated mortgage contract usually has a more long term character than a rental contract and so will leave the house purchaser/mortgage borrower more exposed to future shocks to incomes, house prices and interest rates in for a longer period of time. Also the ability to make regular repayments – evidenced through rental payments – does not substitute or remove the need for the borrower to have a down payment deposit to purchase a house for a house. Such a down payment provides the homeowner and borrower with an important prudent level of initial equity in the house and so can help households to absorb some fall in house prices before the borrower could fall into negative equity.