New Loan Scheme will breach Central Bank income ratios

22 January 2018

Labour spokesperson on affordable housing, Joanna Tuffy has highlighted that the new criteria from the Government for the Home Loan Scheme will breach the Central Bank loan to income ratios and does nothing to make housing more affordable, but increases the amount a person can borrow.

Ms Tuffy said:

“The new Rebuilding Ireland Home Loan Scheme will allow low income borrowers exceed the Central Bank’s loan to income (LTI) ratio cap which is three and a half times income. The maximum joint income to access the scheme is €75,000 which is equivalent to a borrowing limit of €262,500 under that LTI cap. Therefore under the Central Bank rules a couple who wanted to buy up to €320,000 would need a deposit of €57,500 meaning they would need 18% of the value of that home saved.

“The reality is very few in Dublin who might be eligible for this scheme would be able to save that type of deposit while renting in the private market, therefore the scheme in effect means people will borrow above the LTI ratio. For a 90% loan on the maximum amount allowed in Dublin, Cork and Galway, a couple would need a deposit of €32,000 (10% of the value) and a loan balance of €288,000 or a LTI ratio of 3.84 times.

“The new scheme is aimed at low income families who’ve been refused by banks and this will very likely be because they don’t meet the Central Bank’s loan to income criteria. Exemptions under the Central Bank rules are normally only allowed for those on higher incomes whereas those eligible for the Rebuilding Ireland Home Loan will be on relatively low incomes.

“While the interest rates may be lower than most banks under the Rebuilding Ireland Home Loan Scheme the question must be asked if it is wise to abandon loan to income ratios and in effect let the Central Bank rules be circumvented? It will also mean that developers can increase prices up to the caps allowed in the three cities allowed.

“The Government will effectively be subsidising higher loan to income ratios with this measure and driving up prices. The repayments for those who borrow under the Rebuilding Ireland scheme will still be very high at €1221 a month on a mortgage of €288,000 for a couple on a combined gross income of €75000 who buy a house for €320,000.

“It was accepted after the housing crisis that loan to income ratios are necessary to avoid overheating the housing market. Now the Government is abandoning this principal and still is not taking enough action to make housing more affordable.”

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