Exemptions from mortgage regulations fall as Covid depresses home loans

During the Covid-19 pandemic, exemptions from mortgage lending rules have decreased, but there has been no sign of any deterioration in borrowers’ credit quality, according to a central bank report.

Only 13 percent of new home loans by value were exempted from the rules on income multiples and home equity in 2020, up from 17 percent in 2019.

The number of exemptions had been higher than 2019 in the first three months of the year, but there was a sudden drop in exemptions in April as the effects of the first Covid lockdown were felt.

The central bank’s mortgage regulations to ensure responsible lending by banks allow exemptions from the 80 percent mortgage lending threshold for up to 20 percent of loans to existing homeowners. Only 5 percent of the loans to first-time buyers may exceed the permitted loan-to-value ratio of 09 percent.

With regard to the loan to income – where the threshold is 3.5 times the income – exemptions are allowed for 20 percent of loans to first-time buyers and 10 percent of existing homeowners.

The central bank’s report found that those who received exemptions from the income multiplier were most likely individual applicants shopping in Dublin. They were two to four years younger on average and were more likely to use a broker than deal directly with the lender.

Dublin houses made up over 50 percent of all exceptions, with the rest of Leinster accounting for a further quarter.

First-time buyers used an exception rule much less often when they bought a used property instead of a newly built home.

Purchase price

For first-time buyers with an income tax exemption, the average purchase price of a property was 427,257 euros, almost 50,000 euros over the 378,796 euros for those who were not exempted. The average first-time buyer, with one exception, was 33 years old, while the buyer, with no exceptions, was closer to two years older.

According to the central bank, at the beginning of the pandemic there was a “first sharp decline” in new mortgage lending, followed by a significant recovery towards the end of the year. A total of 35,233 loans were granted by seven banks with a total value of € 8.5 billion.

While home loans overall rebounded in late 2020, the proportion of loans that received an exemption from the regulations did not rebound in the same recovery and was between 8 and 10 percent of new mortgages between September and December.

“The certificates are limits, not targets, and do not replace responsible lending standards and the application of adequacy requirements by lenders,” the report said. The 2020 lending data, which showed banks less likely to offer exemptions than last year, did not suggest “a significant deterioration in borrowers’ credit quality since the pandemic”.

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