LTI rule where borrower has existing mortgage

Status
Not open for further replies.
E

ECnewbuild

Registered User
Messages
1
I am a new poster but regular follower. I have a question about the proposed Loan to Income (LTI) rules that may be introduced in the new year.

Facts:
Existing mortgage balance €285k – this property will be retained and rented out. Rent will adequately cover mortgage payments.
New mortgage €200k
Combined incomes for husband & I of €115k

We received mortgage approval earlier in 2014 but didn’t go ahead with our plans to build a house. However we are now keen to start building in early 2015 and am worried that LTI rules will affect our chances of getting a mortgage. Applying the LTI multiplier of 3.5 we would qualify for approval €403k. We only need to borrow €200k as we have savings to fund the remainder of the build. My question is whether our existing mortgage balance will need to come off the top in which case the max mortgage we would qualify for is €118k (€403k - €285k)?

Apologies if this has been asked already – I am just trying to understand how the new rules will have application for us? I’ve asked mortgage advisers in the main lenders and they didn’t know the answer to my question?

Thanks
 
The new rules are out to consultation, so there is no definite answer to your question.

Check out the Central Bank Consultation Paper and see if it's covered there.

And then make a submission.

Brendan
 
Im in a similar position and would keen to hear of anyone else's thoughts on this? Will they actually include the full mortgage outstanding of a rented property in the LTI calculation even if the property has been rented out for years with rent more than covering the monthly mortgage repayment?
 
It seems to me that the the proposed rules are silent on this matter

This is from the discussion

[FONT=&quot]P[/FONT][FONT=&quot]art of the over-indebtedness of households in this crisis comes from the presence of additional secured or unsecured borrowings from multiple sources. A cap on mortgage LTI does not deal with this aspect and could result in leakage through additional non-mortgage borrowing, frustrating the aims of the measure. One theoretical approach to this problem of potential leakage would be to apply a ceiling also to the household’s total debt-to-income (DTI) ratio. Such ratios take into account a borrower’s total debt and are therefore, if they can be enforced, more effective in constraining the build-up of household debt. However, this ratio requires a comprehensive view of all a borrower’s debts, which has been more difficult for the lender to obtain reliably given the absence in Ireland of a Central Credit Register. ...[/FONT]

[FONT=&quot][/FONT]
[FONT=&quot][/FONT][FONT=&quot] Pending the availability of this Register, it would be premature to attempt to establish realistically enforceable regulations on total debt. Lenders must nevertheless seek to inform themselves about total borrower indebtedness and limit their lending accordingly, as per their requirements under the Consumer Protection Code 2012.[/FONT]
Click to expand...

In my submission, I suggested

Residential Investment Properties

Lending for residential investment properties is so different from lending for an owner occupied house, that they should be the subject of separate regulations.
The LTV limit should be set at 70% of their overall portfolio of properties – including their home.
For example, if an investor owns their own home worth €1m mortgage-free, there should be no restriction on borrowing 100% of the cost of an investment property worth €200,000 as the overall LTV of the portfolio would be just 17%.
On the other hand, if someone is at the limits of their LTV and LTI for their family home, they should not be allowed to buy an investment property.
Click to expand...
[FONT=&quot]
[/FONT][FONT=&quot][/FONT][FONT=&quot][/FONT]
Here are the relevant bits from the proposed rules

[FONT=&quot]6[/FONT][FONT=&quot]. Loan to Income[/FONT](1) A lender shall ensure that the total aggregate value of High Loan to Income
Housing

Loans it enters into in a half year period does not exceed 20 per cent of all
housing loans for principal dwelling homes it enters into in that half year period.

(2) Paragraph (1) shall only apply to housing loans for principal dwelling home
purpose.
Click to expand...

and

‘High Loan to Income Housing Loan’ means a housing loan or the total sum of housing loans provided by a lender in respect of an individual residential property under which the total amount advanced meets or exceeds a multiple of
3.5 times the borrower’s income at the time at which that income is assessed by the lender for the purpose of entering into the housing loan.
Click to expand...
 
Status
Not open for further replies.
Back
Top