What are the Central Bank's mortgage lending rules?

The Central Bank’s mortgage lending rules were introduced back in 2015 and have fundamentally changed the mortgage landscape in Ireland.

The rules dictate how much you're allowed borrow for a mortgage in relation to your income, as well as how much you must have for a deposit, and are designed to ensure that financial institutions lend money sensibly.

Under pressure from both the banking industry and government for the rules to be loosened, the Central Bank amended the rules in 2022 following an in-depth review.

What are the Central Bank’s mortgage lending rules?

There are two main rules that you need to be aware of:

1. Loan-to-income limit

The Central Bank's rules limit the maximum amount someone can borrow. This is four times your gross annual income if you're a first-time buyer and 3.5 times your gross annual income if you're a second-time or subsequent buyer.

The same rules apply regardless of how much you earn. 

So let's say, for example, that you're on a salary of €50,000 a year. This means you're allowed borrow a maximum of €200,000 under the Central Bank's rules if you're a first-time buyer. If you’re buying with a partner who also earns €50,000, that amount doubles to €400,000.

If you're a second-time buyer and you earn €50,000 a year you can only borrow €175,000.   

2. Loan-to-value ratio

The second mortgage lending rule relates to the loan-to-value ratio that lenders are required to observe. This refers to the percentage of the property’s value that you can borrow and how much of it you must pay for upfront in the form of a deposit.

It's often simply called 'the deposit rule'. 

First-time buyers and second-time or subsequent buyers are allowed a maximum loan-to-value of 90%, meaning you're required to have a deposit of at least 10% for any property. 

Let's say, for example, that you're a first-time buyer and you want to buy a house for €300,000. The rule means you'll need a minimum deposit of €30,000 before you can be lent the remaining €270,000.

Exceptions to the rules

In any one calendar year, 15% of mortgages that lenders give out to either first-time or second-time and subsequent buyers can breach the income limit or deposit requirement. There are often called 'exemptions'. 

With an exemption a mortgage seeker can potentially borrow up to around 4.5 times their income. 

How do I get a mortgage exemption?

Firstly you need to know that you can usually only get an exemption under ONE of the lending rules. It's extremely rare that a bank will allow you to breach both the loan-to-income limit as well as the loan-to-value ratio. It's either one or the other. 

Whether you get an exemption will depend on your credit worthiness, the quality of your mortgage application and whether the lender still has room to give out an exemption.

Exemptions are often all used up by the middle of the calendar year, so if you want to apply for one, the earlier in the year that you apply for your mortgage the better.

Banks also tend to give exemptions to people on higher incomes, which means around €50,000 or above for a single applicant and €75,000 and above for a joint application.  

A limit, not a guarantee

It's important to remember that the Central Bank's lending rules only refer to the maximum amount you can be lent. 

Banks will take into account your other loans, outgoings, bills and commitments before deciding how much they will lend you. 

For more information, see our guide on how mortgage applications are assessed  

Do the Central Bank's mortgage lending rules apply to switchers?

If you're thinking of switching your mortgage then the Central Bank's rules don't apply. However most banks won't let you switch if you're in negative equity and most will require you to have at least 10% equity in your home.   

Do other countries have these rules?

Yes. Ireland is not alone in having these types of rules.

Many other countries in Europe have rules which dictate how much you're allowed borrow for a mortgage and how much of a deposit you need. And in some cases the rules are even stricter than ours.   

What now?  

So, now that you know how much you're allowed to borrow in theory, what next?

In order to avoid becoming bamboozled during meetings with your bank or mortgage broker, it’s a good idea to familiarise yourself with some of the mortgage-related buzzwords you're likely to come across in your mortgage journey.

• Check out this guide to learn about the various types of mortgage interest rates.
• If you’re a first-time homebuyer you could claim a tax rebate of up to €30,000 with the Help-to-Buy scheme, which is designed to help first-time buyers acquire the deposit necessary to buy a newly built home.
• Fixed mortgage interest rates have become increasingly popular, however it’s important to understand the pros and cons of both variable and fixed rates.
• If you’re thinking about buying an energy-efficient home with a Building Energy Rating (BER) of at least B3 or higher, you could apply for a green mortgage. You can learn more about green mortgages in this guide.

You can stay up to date on the latest mortgage news and helpful advice with our blogs and guides pages.

Get your mortgage on bonkers.ie

Once you’ve become familiar with the Central Bank’s mortgage lending rules and mortgage terminology, you can complete your whole mortgage journey on bonkers.ie.

Head over to our mortgage calculator and easily find the best interest rates, offers and cashback incentives from all of Ireland’s mortgage lenders.

When you decide it’s time to apply for a mortgage, you can schedule a callback through our free mortgage broker service and one of our experienced financial advisors will call you to get your application started. They will be there every step of the way through your mortgage journey - with no extra cost to you as a customer! 

Our mortgage broker service is fully digital from start to finish, meaning everything can be carried out online from the comfort of your home. 

You can learn about how your mortgage application will be assessed in this guide.

Finally, you’ll also need mortgage protection insurance and home insurance to get mortgage approval, both of which we can also help with!