Mortgage rules for bridging loans tweaked
The Central Bank has announced what it describes as a “targeted amendment” to its mortgage rules on bridging loans.
The mortgage measures limit the size of mortgage debt to buy residential property based on the income of the borrower (loan-to-income or LTI limit) and the value of the property (loan-to-value or LTV limit).
The change announced today (8 April) exempts certain bridging loans for principal homes from the loan-to-income (LTI) limit.
The regulator says that the loan-to-value (LTV) limit will continue to apply to these products, and all other elements of the mortgage measures remain unchanged.
Short-term loan
A principal-home bridging loan is a short-term loan (with a maximum term of 18 months) that facilitates existing home-owners to buy a new principal home before completing the sale of their current property.
Unlike standard mortgages, these loans are repaid from the proceeds of the property sale, rather than from regular income.
The Central Bank says that its amendment recognises that bridging-finance products are a feature of the evolving Irish mortgage market.
Deputy Governor Vasileios Madouros said: "Bridging loans serve a purpose in helping home-owners move between properties, and the LTI limit is less relevant for products where repayment comes from asset sale proceeds, rather than regular income.”
‘Proportionate response’
He described the change as “a proportionate response” to market developments that maintains the Central Bank’s core objectives of sustainable lending.
The Central Bank warns that lenders must continue to assess the suitability and affordability of bridging loans for individual borrowers, adding that consumer-protection rules also apply “in full” to these products.
Tánaiste and Minister for Finance Simon Harris welcomed the move, saying that it was particularly welcome for many borrowers trading down who may be retired and have lower incomes.