New research analyses allowances applied under mortgage rules - Submission period extended to 31 August 2016

• Average Loan-to-Value and Loan-to-Income ratios marginally lower for lending covered by the mortgage rules
• Financial institutions have complied with the measures
• Call for submissions on the measures extended to August 31

The Central Bank has published a new Economic Letter (PDF 374.82KB)¹, by Enda Keenan, Christina Kinghan, Yvonne McCarthy and Conor O’Toole, providing an overview of residential mortgage lending in Ireland that took place between 9 February 2015, when the mortgage rules took effect, and 31 December 2015.

The rules  apply loan-to-value (LTV) and loan-to-income (LTI) limits to mortgage lending, while allowing for a certain percentage of lending in excess of the limits. The Letter uses loan-by-loan information collected by the Central Bank to monitor compliance with the LTV and LTI limits. The data in the Letter are compiled from lenders who advanced at least €50 million of residential loans in a six-month reporting period, and includes Allied Irish Bank, Bank of Ireland, permanent tsb, Ulster Bank Ireland and KBC Bank Ireland.

The Letter compares mortgage lending covered by the rules (in-scope) and lending which was not covered by the rules (out-of-scope), primarily because of pre-approvals granted prior to their introduction. The comparison shows that average LTV and LTI ratios for principal dwelling house (PDH) lending were marginally lower for lending covered by the rules.

Under the measures, a proportion of lending is permitted at levels of LTV and LTI above the specified limits. The data shows that a total of 13 per cent of in-scope PDH lending exceeded the LTV cap (up to 15 per cent is permitted) and 17 per cent of in-scope PDH lending exceeded the LTI cap (up to 20 per cent is permitted). The research notes differences in the characteristics of borrowers with and without an allowance. Notably, differences were evident across income, borrower age, marital status and region.  The research also shows that:

• The average loan drawn down by First Time Buyers in scope of the rules was €172,872, with an average property price of €234,599 and average income of €64,721.
• For second and subsequent buyers the average loan drawn down (in scope) was €203,539, with an average property price of €374,644 and an average income of €104,331. 

The Central Bank has extended the call for submissions to inform the evaluation of the mortgage regulations to August 31 to ensure applicants can inform themselves with the most up-to-date information.

¹ The views presented in the Economic Letter are those of the authors alone and do not represent the official views of the Central Bank of Ireland or the European System of Central Banks.

Notes:

This set of data covers a period when banks and borrowers were transitioning to the new regulatory environment and trends may not necessarily reflect those of future years.

Data underlying any charts in this publication is available on request from [email protected].

Details on the call for submissions and the mortgage regulations can be found here.