First-time buyers who sign up to fixed-rate mortgages in a bid to borrow more money to buy a house will no longer be able to do so from next month.
All lenders that fall under the remit of the Financial Regulator must stress-test loans to ensure borrowers can afford mortgage repayments if interest rates increase.
Under new rules being introduced by the regulator next month, lenders will be required to stress-test all mortgages to ensure a borrower can afford repayments if the rate they are charged increased to 2.75 per cent above the European Central Bank (ECB) rate.
Under the Regulator’s previous guidelines, lenders stress-tested mortgages to ensure a borrower could afford the repayments if the standard variable interest rate on a mortgage - which is normally more than 1 per cent above the ECB rate - increased by at least 2 per cent.
Some lenders, including Bank of Scotland, EBS Building Society and IIB Homeloans, don’t currently stress-test borrowers who sign up to five-year fixed rate mortgages.
**Stress test due for all fixed-rate borrowers **
Sunday, August 19, 2007 - By Louise McBride
archives.tcm.ie/businesspost/200 … y25919.asp
First-time buyers will be forced to take on more expensive loans - or risk being priced out of the market - when new borrowing rules are introduced this autumn.
The Financial Regulator is planning to introduce new ‘stress tests’ for first-time buyers and other borrowers following concerns about the ability of homeowners to afford monthly mortgage repayments after eight interest rate increases in 18months.
Interest rates are at their highest level in six years, following the increases, and the changes will be introduced to make sure that borrowers can weather further rate increases.
At least one more interest rate rise of 0.25 per cent is expected before the end of the year, with a second possible early next year.
Under the new tests, lenders are likely to have to check if borrowers can afford to repay their mortgages if the European Central Bank (ECB) rate, which determines how much interest homeowners pay on their mortgage, rose by 3 per cent, according to well-placed financial sources.
**New lending rules to hit first-time home buyers **
Sunday, June 17, 2007 - By Louise McBride
archives.tcm.ie/businesspost/200 … y24464.asp
Fear and loathing is the order of the day in the Irish mortgage market since the Financial Regulator leaned on the EBS two weeks ago, forcing it to withdraw a new mortgage product. The word round the broker community is that the regulators move followed an intervention from Permanent TSB, which operates Irelands biggest mortgage book.
The background to the spat centers on a new mortgage affordability calculator launched by EBS in January. Changed rules meant that EBS could approve loans worth €100,000 more than other lenders were willing to loan the same borrowers, especially first-time buyers.
But, what looked like excellent news for mortgage brokers provoked consternation among rival lenders, who were perplexed as to how EBS had come up with this new lending capability. Some lenders were so irked by the EBS promotion that they offered to review applications they had recently turned down.
Intermediaries are not pleased with Permanent TSB - and neither is the EBS. The mood among some top-tier members of the mortgage industry is decidedly sombre and we hear frank and forthright views have been exchanged at the most senior levels.
One initiative by the EBS was to alter its stress testing of borrowers. A customers ability to repay loans was measured against a two-percentage point increase in the building society’s own variable rate, as had been the case.
In response, Permanent TSB came up with the brilliant wheeze of asking the regulator to clarify its position on the new criteria. That is when the EBS bubble burst.
The regulator duly pressed the EBS to withdraw its product pending an industry-wide review of lending guidelines - through granting it a grace period.
The EBS faces an expensive review of its systems, but it can take some comfort from the fact the intermediates have been pushing volumes of last minute business its way.
“Permanent TSB behaved like a spoilt child,” complained one disappointed broker.
In response to a Sunday Times query, Permanent TSB “emphatically” denied making a “complaint” about the EBS product, but would not comment on whether it had communicated with the regulator.
EBS discovers all’s fair in the mortgage war
Aine Coffey, Sunday Times, Feb 18, 2007
and there is more on the track record of our financial regulators…
IFSRA caves in to country’s banks on compliance plans
Sunday, June 03, 2007 - By David Clerkin
archives.tcm.ie/businesspost/200 … y24064.asp
Mortgages 'can be seven times income’
By Jason O’Brien Monday March 05 2007
independent.ie/national-news … 48030.html
Regulator warns of risks of equity release
Tuesday, 6 February 2007
rte.ie/business/2007/0206/fi … lator.html
Irish rules obstruct new banks - EU
Wednesday, 31 January 2007
Regulator waters down rules on high-risk lending
Sunday, January 14, 2007 - By David Clerkin
archives.tcm.ie/businesspost/200 … y20258.asp
**Regulator warns about high-risk property loans **
Sunday, November 12, 2006 - By Richard Curran
archives.tcm.ie/businesspost/200 … y18841.asp