Banking and Payments Federation happy with 3.5 times LTI limit

Interesting submission from the BPFI


Taking account of the current market place and the quality of new mortgage lending, we are proposing the following recalibration of the regulations to address issues that have emerged since their introduction in February 2015:

  • Increase the threshold for the First Time Buyer cohort from ‘up to 90% of €220,000 to ‘up to 90% of €300,000’
  • Exempt equity release for home improvements from the LTV regulations
  • Extend the two month time limit for valuation reports to four months
  • Consider the difficulties encountered by those in the ‘Renters’ cohort and those second time buyers who have recently returned to a minor amount of positive equity
  • Include a ‘safety tolerance’ within the current limits to allow for a smooth operation of the regulations
  • Limit the data obligations for lenders to the specific requirements of the regulations.

It should be noted that our recommendations do not seek to adjust the LTI cap and under this
proposed recalibration all FTB borrowers will continue to be required to meet the current 3.5x LTI
limit so that they can show affordability in terms of repayments. The primary assessment
methodology utilises NDI criteria which focuses on proving sustainable repayment capacity. This
combined with the requirement to meet a stress test measure of +2% on any mortgage before an approval can be provided will ensure that our proposed change will not result in borrower overindebtedness.
 
They echo the point I made in my submission, but they don't seem to have come up with a formula to fix it.

3.5 Second Time Borrowers (LTV > 90% < 100% on existing property)
From our assessment of the impact of the regulations we believe that there is evidence of a
limiting effect on the cohort of ‘Second Time Borrowers’ (STB) who find themselves in a position
of marginal positive equity. These borrowers purchased ‘starter homes’ in the years
immediately preceding the financial crisis. These borrowers may have been in negative equity
but have recently returned to minimal positive equity. They have also met their mortgage
repayments throughout the term of the loan with some borrowers ‘overpaying’ to reduce
negative equity. The regulations recognise the difficulties in moving for borrowers in negative
equity by exempting them fully from the LTV limit. However, the cohort with marginal equity is
subject to the full extent of the mover limit of 80%.


We believe that there is merit in considering an adjustment to the regulations for this cohort
who are trading up to a larger property. This would bring a number of benefits to the overall
housing market including:
 Increase the overall supply of property for sale which has been declining in recent years
 Provide a supply of ‘starter homes’ to meet the needs of First Time Buyer
 Develop a more normalised housing market with a wider choice of properties along
with more diverse buyer cohorts
The average age of a STB is also increasing, thereby impacting on affordability for this cohort
while many have also seen an increase in income in recent years. We are also cognisant of
those STBs who have managed to eliminate their negative equity by meeting or perhaps
exceeding their mortgage repayments but who remain ‘trapped’ as they have LTVs in excess of
90% as a result of the downturn in property prices.
 
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