Homeowners looking to downsize to smaller properties can now avail of short-term bridging loans to help them on their journey.
The Central Bank of Ireland has eased lending-rules to assist older homeowners in downsizing.
On Wednesday the regulator said it will exempt homeowners taking on a bridging loan to buy a new home, prior to the sale of an existing property, from the loan-to-income (LTI) requirement that generally applies to owner-occupier mortgages. However, a loan-to-value limit will continue to apply.
The amendment recognises that bridging finance products are a feature of the evolving Irish mortgage market and ensures that the regulatory framework adapts appropriately to continue to support market functioning without compromising lending standards or resilience of borrowers and lenders in the mortgage market, the Central Bank said.
Within the measures, a principal home bridging loan is a short-term loan – with a maximum term of 18 months – that facilitates existing homeowners to purchase a new principal home before completing the sale of their current property.
Unlike standard mortgages, these loans are repaid from the proceeds of the property sale rather than from regular income.
In late 2024, ICS Mortgages became the first Irish mortgage lender to introduce a bridging loan product since the financial crash. Bank of Ireland launched a pilot bridging loan product aimed at people trading down earlier this year. The costs of such loans are much higher than standard mortgages, due to their short-term nature.
“This targeted amendment reflects our commitment to ensuring the mortgage measures remain fit for purpose as the market evolves,” Vasileios Madouros, a deputy governor of the Central Bank told The Irish Times.
“Bridging loans serve a purpose in helping homeowners move between properties, and the LTI limit is less relevant for products where repayment comes from asset sale proceeds rather than regular income.”
It is hoped that the development will help increase stock on the market. An Economic and Social Research Institute (ESRI) report from 2024 found that two-thirds of properties in Ireland are under-occupied - the third highest in the European Union and double the average.
However, the ESRI also noted that that there was a strong preference for people in Ireland to live in houses rather than apartments.
The current mortgage regulations allow most first-time borrowers to take out loans of up to 4 times their gross annual salary, while the limit for second and subsequent buyers is 3.5 times. They also permit a maximum loan-to-value of 90% for a principal home and 70% for buy-to-let properties.
Lenders may allocate up to 15% of the value of owner-occupier lending to loans that exceed the limits. The exemption rate for buy-to-let business stands at 10%.
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