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New hope for buyers: Five years before full 20pc mortgage cap

Homebuyers will have five years to escape the full brunt of the new 20pc mortgage deposit rules, under new proposals being considered by the Central Bank.
The Central Bank Commission will decide on the new rules on Tuesday, but the Sunday Independent has learned that the preferred option is now a 15pc mortgage deposit, rising by 1pc each year over the next five years.

While sources close to the process have insisted “no final decision” has yet been taken, it is clear the original 20pc requirement is being softened.

Those hoping to buy homes were blind-sided by the original plan, announced by Central Bank Governor Patrick Honohan, designed to dampen an overheating property market and stop reckless borrowing.

House prices in Ireland are now rising at a higher rate than anywhere else in the EU – six times higher than the EU average.

Under the new home-loan regime, all house buyers — not just first timers — will have to save €52,500 to secure a loan on a €350,000 property.

The five-year phased introduction of the mortgage cap comes as a new national opinion poll reveals a massive pent-up demand for housing and a generation of adults who are disillusioned, angry and fearful they will never own their own home.

The Behaviour & Attitudes Social Poll, carried out on behalf of the Sunday Independent and Today FM, also reveals 51pc of voters believe the new lending rules will make it more difficult for them to own the roof over their head.

The poll also reveals 20pc of 30-somethings who rent in Dublin want to buy their own home in the next 12 months.

Read More: 30-somethings: Rents too high − impossible to buy

The new mortgage cap plans gives those who rent a window of opportunity to avoid the prohibitive 20pc deposit. Senior sources familiar with the plans this weekend confirmed that a “phasing up” of the rates between now and 2020 is the preferred option on the table.

“Certainly the idea of phasing in the regulations in 1pc increments is in the mix,” a senior source told the Sunday Independent. “However, it is also possible that a hybrid or mix of various options could end up being the final package. There are a lot of options under consideration.”

The new phased approach from the initial 20pc deposit cap comes amid fears that thousands of first-time buyers would be effectively priced out of the market forever.

The Central Bank has come under intense political pressure to abandon the 20pc deposit rate, with a year to go before a general election.

Several Cabinet members — including Finance Minister Michael Noonan — have declared the 20pc rate was too arduous.

However, senior sources have said the Central Bank is keen to assert its independence from government.

“Any decision will have to be evidence-based and will have to be grounded in economic realities. This will not be a political decision,” one source told the Sunday Independent.

The average price of a home in Dublin currently stands at €263,000. At 15pc, new homebuyers looking to buy at this price in the capital would need €39,450 up front. At 20pc, they would need €52,600.

Lobby groups for homeowners have complained that even if they saved €500 a month, it would take them almost nine years to gather enough for a deposit.

In 2014, 44pc of home loans were for more than the 80pc loan-to-value ratio proposed by the Central Bank. If the new proposals become policy, nearly a third of last year’s homebuyers would have been shut out of the market.

Siptu General President Jack O’Connor this weekend said the Central Bank plans will put home ownership beyond the reach of thousands of individuals and couples.

“They would in fact make it the exclusive preserve of the better-off, those able to access inherited wealth and of serial investors,” he said.

Irish Mortgage Holders Organisation (IMHO) founder David Hall last night hit out at the Central Bank plan, saying it only aimed at protecting the banks.

He told the Sunday Independent: “This measure is not about cooling house prices or protecting house purchasers. It is about insulating the banks from the hit in the event of another property crash.

It means that the banks will ultimately have 20pc ‘fat’ on each loan to absorb any future reduction in house values.

Those who want to buy will go to their family, or the Credit Union, or possibly even moneylenders to get the extra cash for their deposit.”

The Sunday Independent poll findings, published today, will alarm the embattled Coalition.

A massive 68pc of voters, aged between 20 and 49, believe the Government is not doing enough to help people buy a home.

And nearly six out of 10 voters (59pc) say the bailed-out financial institutions are not doing enough to help people get on the property ladder.

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