Central Bank Mortgage Rules query

[Punter]

I was driving home from Cork the other day and half listening to the radio. They were talking about mortgage offers being made by banks and, in particular, at one point, PTSB’s 3-1 offer. Then there was a discussion about the limits of 80% and 90% respectively but it appears that not all loan offers have to be at that level, and they seem to infer that a certain percentage, 15% they mentioned, could be above that.

I checked the Central Bank rules and it says that "The total value of new lending for PDH mortgages above these limits should be no more than 15 per cent of the euro value of all PDH mortgages in a calendar year.

centralbank.ie/press-area/p … ending.pdf

Just wondering could anyone shed any light on this?

[Punter]

@Mantissa

That is correct. It’s based on the aggregate value over the year. So the bank can make some exceptions for preferred customers, TDs’ families, or whatever. This led to a situation in 2015 where KBC issued too many “jumbo” mortgages over the summer and suddenly had to scramble to get more compliant mortgages drawn down early, to even things out. Basically, the banks were unable to manage their own affairs even within the incredibly simple rules that are in place.

Thanks, that’s interesting. You don’t happen to know, even anecdotally, what percentage level people were getting?

[Poor_Student]

@Mantissa

That is correct. It’s based on the aggregate value over the year. So the bank can make some exceptions for preferred customers, TDs’ families, or whatever. This led to a situation in 2015 where KBC issued too many “jumbo” mortgages over the summer and suddenly had to scramble to get more compliant mortgages drawn down early, to even things out. Basically, the banks were unable to manage their own affairs even within the incredibly simple rules that are in place.

The exceptions don’t tend to be given on an ad hoc basis rather the banks tried to develop a second set of criteria which would see them come within a hair’s breath of maxing out their allotted exemptions i.e. find a specific set of variables that a 15% cohort fell into obviously targeting a higher profile of client but by no means was it restricted only to elites. Its success is predicated on any given bank accurately predicting the overall size of the mortgage market in any given year and its own respective share of that market. I personally don’t believe the CBI should have allowed these exceptions to exist or at least had them on a much smaller scale.

Punter, banks have tended to assess the selected exception cases under their old criteria. Irish banks had tended to use a certain percentage of your net disposable income (the higher your income the higher the allowable percentage) as the maximum allowable to service a stress tested mortgage payment and then work that backwards over your maximum term to work out your max possible borrowing. The variance between the max amount under CBI rules and bank exception cases tends to grow the more income you earn.

It’s quite a messy situation. An approval in principle as an exception to the rules may or may not be honoured particularly as we get later in the year. Front bank staff and brokers also struggle to understand the dual assessment criteria so I’d take anything you’re told by an advisor with a pinch of salt. The only way you’ll have an idea is to go and get an approval in principle but take it with a caveat.

[NegativeEquity]

@Poor Student

I personally don’t believe the CBI should have allowed these exceptions to exist or at least had them on a much smaller scale.

Can’t remember 100% but weren’t the exemptions (&FTB deposit rule) come about as part of political lobbying (interference)?

[apeking]

Just curious on this, does the Banks overall pot of exemptions benefit if they lend under the limits

For example, if they lend to Jimmy at 70% LTV and 2.5 times LTI and then to Mary at 90% LTV and 4.5 times LTI does it cancel each other out and are the Bank then within their requirements?

For example:
Jimmy
Income - €50k
House Value - €180k
Loan - €125k
LTV – 70%
LTI – 2.5

Mary
Income – 50k
House Value - €250k
Loan - €225k
LTV – 90%
LTI – 4.5

If someone is looking to borrow under the limits would the bank look more favourably on this as it increases the number of exemptions they can offer?