First-time buyers have been spared the worst of strict new lending rules introduced by the Central Bank.
However, a rural-urban divide in the housing market is set to widen considerably, with families in cities and large towns at a major disadvantage.
The limits will make it more difficult to get home-loan approval for those in the Dublin area and Cork city, where property prices are far higher than the rest of the country.
The new rules stipulate that borrowings by first-time buyers up to €220,000 will be approved with a deposit of as little as 10pc. But any amount over €220,000 will require a 20pc deposit for that portion of the mortgage.
Non first-time buyers have been hardest hit under the new mortgage deposit rules and will have to come up with a 20pc deposit. At the moment, someone borrowing €300,000 can get a mortgage with a 10pc deposit, or €30,000.
Under the initial controversial proposals published by the Central Bank last October, a 20pc deposit would be needed for all borrowers. This would mean a deposit of €60,000 for a €300,000 mortgage.
But the new limits are likely to drive the two-tier property market. This is because properties in many urban areas are twice as expensive as those in rural locations.
Those borrowing for a buy-to-let will have to have a deposit of 30pc. And banks will only be able to go beyond this limit for 10pc of the value of investor mortgages.
The new limits are set to apply within weeks.
The Institute of Professional Auctioneers & Valuers last night described the new rules as “devastating”. They claimed the move “will lock many out of property for several years”.
And it has emerged that developers stopped building when the Central Bank first proposed the new mortgage caps plan last October.
Whether they start building again now is open to question.
Builders argue city buyers will be hampered by the modified lending rules, while prices for properties outside the capital do not match building costs.
The new rules will apply to first-time buyers and those on a second and subsequent mortgage. But the less severe limit for first-time buyers is being put in place in a bid to avoid them being turned down for mortgages for starter homes.
Banks will be allowed to loan out 15pc of mortgages outside the new deposit rules.
The original income limits on borrowings of no more than three-and-a-half times earnings will stay in place for new and other buyers.
This means a couple, both on the average wage and so earning around €70,000, will be restricted to borrowing €245,000.
The average three-bed semi in Dublin 13 is changing hands for €320,000, according to the Irish Independent ‘How Much Is Your House Worth? 2015’.
Similar homes in Laois are being bought for €100,000. In South Cork, a three-bed semi is worth €240,000.
Homeowners in negative equity – those who owe more than their home is worth – will be exempted from the new rules on deposits. This means those wanting to trade up or trade down, will not be required to have built up equity in their homes. And the limits will not apply to mortgage switchers.
The new refined rules emerged after the board of the Central Bank, known as the commission, met for hours yesterday. The commission, chaired by Governor Patrick Honohan, was keen to avoid being seen to be shutting first-time buyers out of the market.
One commission member, asked if the new rules would not be hard on Dublin buyers, said: “We considered that but we can’t separate out Dublin from the rest of the country. Where does Dublin start and where does it end?”
Mr Honohan said: “These measures will reduce potential financial vulnerabilities for both borrowers and the wider economy and will help ensure a stable and well-functioning mortgage lending market.
“At the cost of some additional complexity, but without compromising the overall effectiveness of the measures, we are increasing the limit for first-time buyers of lower-cost houses.”
“First time buyers never caused a boom,” he added today.
He also said he believes the housing market is bouncing back but a bubble is not in place.
However, he also told RTE radio that bounce backs can turn into bubbles and the Central Bank move on mortgages is a precautionary one.
However, Fianna Fáil’s Michael McGrath said the rules will exclude homeowners from moving home unless they have positive equity of at least 20pc built up in their properties.
“This could result in an entire generation of people being trapped in houses and apartments which are no longer suitable for their needs,” he said.
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