The mortgage measures limit the size of mortgage debt to buy residential property. These limits are based on the income of the borrower (loan-to-income limit), and the value of the property (loan-to-value limit). The measures were introduced by the Central Bank of Ireland in 2015 and are now a permanent feature of the Irish mortgage market.

The measures are designed to ensure that banks and other lenders lend money prudently and to limit the extent to which house buyers can borrow more than they can afford. By doing so, the measures increase the resilience of both borrowers and the banking system so that they can better withstand any future economic shocks.

This is central to the Central Bank’s policy framework and our mandate to serve the public interest by safeguarding monetary and financial stability and working to ensure that the financial system operates in the best interests of consumers and the wider economy.

The measures are reviewed on an annual basis. This is to ensure that they continue to meet the objectives of increasing bank and borrower resilience and reducing the risk of an unsustainable credit fueled housing boom from developing in the future.

Reviewing the measures annually allows the Central Bank to respond to emerging risks in lending and housing markets and to adjust the measures accordingly, to promote the long-term sustainability of Irish mortgage lending and safeguard wider financial stability.

The mortgage measures were introduced in February 2015 to enhance the resilience of both borrowers and the banking sector, and to reduce the risk of bank credit and house price spirals from developing in the future.

The objective of the mortgage measures is not to target house prices. Housing market policy issues like taxes, building regulations and planning policy, rental market regulations, and delivery of social and affordable housing are outside of the Central Bank's remit. Financial sector regulations cannot address wider issues in the housing market, currently reflected in the relative shortage of housing supply, which must instead be addressed be other targeted policies.

While the measures set requirements for lenders, they do not replace responsible lending standards and the application of suitability requirements by lenders. Lenders must continue to be satisfied that mortgages are affordable for borrowers for the duration of the life of a loan.

We believe these measures ultimately help to protect borrowers from potential future crises. Had similar measures been in place during the boom period, the impact of the financial crisis on households and on financial stability would have been reduced.

The Central Bank has decided that the calibration of the mortgage measures will remain unchanged, in light of the ongoing framework review.

Read our explainer to see what these limits are.

Operational changes to the measures are being made with the introduction of a "carry-over approach" for allowance lending and amendments clarifying regulated mortgage lenders’ ability to participate in the "First Home" Shared Equity Scheme.

The 2021 annual review of the mortgage measures took place in parallel with the ongoing framework review of the mortgage measures. The framework review is considering the overarching approach to the mortgage measures to ensure that they remain fit for purpose, in view of the evolution of the financial system and economy since the measures were first introduced in 2015. This framework review will conclude in the second half of 2022.

As part of the annual review, the Central Bank has decided that the calibration of the mortgage measures will remain unchanged, in light of the ongoing framework review.

The assessment carried out for 2021 showed no evidence of deteriorating lending standards or an increased role for credit dynamics in explaining recent house price trends. The review showed a reduction in pandemic related uncertainty and a robust recovery in the mortgage market. Existing demand-supply imbalances in the housing market have been exacerbated, leading to upward pressure on house prices.

A mortgage deposit acts as a cushion of housing equity, and can help households to absorb house price falls without the borrower falling into negative equity.

Having minimum deposit requirements reduces the risk that households will fall into arrears and, all else equal, leads to more affordable mortgages over the life of the loan. The best path to an increased ability to save for a deposit is a higher supply of rental properties, which will lower rental cost burdens for those in the rental sector.

The proportionate allowances within the mortgage measures do allow some flexibility for lenders to issue mortgages to FTB borrowers at LTVs greater than 90 per cent. The lack of take up on this flexibility however points to lenders having very limited appetite to lend at LTVs of greater than 90 per cent.

Saving a deposit for a house is a feature of the market that pre-dates the mortgage measures and ensures better long-term outcomes for both the borrower and the lender. Traditionally in Ireland over the years, with the exception of a few years during the 2000s, banks have - for their own risk management purposes - required a minimum deposit, typically of around 10 per cent, when lending for a mortgage.

Lenders do take into account rental payments when making their affordability assessment as part of regular underwriting process, to assess borrowers’ ability to repay. But the ability to make regular repayments – evidenced through rental payments – does not substitute for the protection for borrowers in having a deposit.

An important part of the Central Bank’s mortgage measures framework is that there are two requirements: a deposit requirement (LTV) and an affordability requirement (LTI). These different limits address different elements of mortgage market risks. The LTV limit provides a buffer against the effects of house price falls, which would push borrowers into negative equity and increase the risk of default. The LTI limit, on the other hand, provides a buffer against the effects of future shocks to income or employment.

The rapid growth in rents in recent years reflects an underlying imbalance between housing supply and demand. The most effective way to ensure that rents become more affordable is that more supply of rental properties comes on the market in areas where demand is highest. This would mean more rental property construction in urban areas.

More broadly, a mortgage is the largest liability that most households will take on in their lifetime. It comes with less flexibility than a rental contract, leaving borrowers more exposed to shocks to incomes, house prices and interest rates in the future.

No. The measures are not intended to regulate or directly control the level of house prices. They are designed to promote financial stability by ensuring that banks and other lenders lend money responsibly and people don’t borrow more than they can afford when purchasing a property.

The Central Bank framework specifically allows flexibility by lenders when assessing individual cases. The allowances mean that lenders are able to make decisions based on an individual borrower’s circumstances up to a specific limit. Lenders are still required to assess an individual borrower’s affordability and lend prudently on a case-by-case basis, in line with the requirements of the Consumer Protection Code and other regulations. 

Since the introduction of the measures, between 20 and 30 per cent of all new mortgages in Dublin have tended to be issued with an allowance. This suggests that the flexibility inherent to the measures has been facilitating access to mortgage finance in the capital, where the imbalance between house prices and incomes is higher than the rest of the country.

More broadly, differentiating the limits on a geographical basis may lead to unwanted side effects for the housing market and the operation of the mortgage measures.

The measures have contributed to making sure that those who have purchased properties are better prepared to manage their mortgage payments in the event of a future downturn in the economy.

Householders will be better protected as they will have a deposit in place that will limit the exposure to negative equity. Banks will be better protected as there is a buffer between the loan and the value of the home. Had similar measures been in place during the boom period, the impact of the financial crisis on households and on financial stability would have been reduced.

The 2019 Review found that if the measures had not been introduced in 2015, both the level of house prices and the proportion of highly indebted mortgage borrowers would likely have been significantly higher in 2019 than their currently observed levels, all else being equal. While the objective of the mortgage measures is not to target house prices, this suggests that – in the absence of the mortgage measures – affordability pressures for mortgage borrowers would have been even more acute.

The benefits of the measures are most evident in times of stress, such as the economic shock resulting from necessary public health restrictions required to contain the COVID-19 pandemic. One example of the resilience which the measures support is the evidence that the tendency of a residential mortgage loan to have a COVID-19 payment break was  closely correlated to the loan-to-income ratio at origination.   

Yes. Allowances to exceed the LTI limit and LTV limit have been central to the framework of the mortgage measures since their introduction. The allowances acknowledge that higher LTI and LTV mortgages can be appropriate in certain circumstances. For example, an allowance might be appropriate for younger borrowers who are at an early stage in their income lifecycle. There is higher flexibility to lend above the limits for first-time buyers, where 20 per cent of new lending can take place above the LTI limit. The same flexibility exists for second time buyers and the LTV limit. To find out more about the level of allowances read our explainer.

This is a matter for individual lenders, based on an evaluation of each specific borrower and the lender’s own credit policies. The limits are in addition to individual banks' credit policies and are not a substitute for lenders’ responsibilities to assess affordability and lend prudently.

The "carry-over" system will permit, within the specified limits of the measures, lenders who have allowance lending which has not been allocated in a given year to utilise this in the first half of the following year, on the condition that such lending was fully approved in the given year.

Fully approved refers to where a lender has:

• Verified the housing loan applicant borrower’s income, assets, debts and other information relevant to the housing loan application
• Complied with Section 14 of the Credit Reporting Act 2013 
• Applied a full credit risk assessment
• Issued a formal letter of offer to the prospective borrower.

The introduction of the "carry-over" approach will facilitate lenders in carrying over any unused allowance share from 2021 for use in H1 2022, on the provision that those loans were fully approved in 2021.

The carry-over system will apply to all allowance types across all borrower types i.e. First Time Buyers (FTB), Second and Subsequent Buyers (SSB) and Buy to Let (BTL)).  

The operation of the allowances has received considerable feedback since the introduction of the mortgage measures and has been a recurring topic in annual reviews. Lenders highlighted particular challenges in managing the allowances when broader uncertainty (e.g. Brexit or COVID-19) makes forecasting difficult. As management of allowance lending by institutions requires forecasting predicted full year new lending, in an environment of increased uncertainty, they can be difficult to operationalise.

The Central Bank has been open to industry engagement to discuss proposals to improve the functioning of the allowances and in 2021 received a proposal from Banking and Payments Federation Ireland. Following further engagement on the issue the Central Bank assessed that introducing a carry-over approach to managing the allowances was operationally feasible from a monitoring and compliance perspective, while allowing the objectives of the measures to continue to be met.

No. While the measures place ceilings on the size of mortgages, they do not replace responsible lending standards and the application of suitability requirements by lenders. Lenders must continue to be satisfied that mortgages are affordable for borrowers for the duration of the life of a loan.

No. Lenders are still required to assess each loan application on a case-by-case basis. Ultimately, the amount of any loan offered is a matter for individual lenders, but only a proportionate level of mortgages as specified in the mortgage rules are allowed to exceed the LTV and LTI limits.

The mortgage measures apply to mortgages secured on residential property in the State. Equity releases and top-ups on existing mortgages are also covered by the measures.

Mortgages out of scope of the measures are:

• The LTV and LTI limits do not apply to switcher mortgages or mortgages entered into in order to address arrears or pre-arrears.
• The LTI limits apply to mortgages for borrowers in negative equity who are selling their home and wish to obtain a mortgage for a new property. The LTV limits do not apply. However, the usual lending standards of individual banks apply to these borrowers. In the case of joint mortgage applications, if one borrower is under a negative equity loan, the full application is considered to be a negative.
• The LTI limits do not apply to housing loans for non-private dwelling home purposes (i.e. buy–to-let) and to lifetime mortgages.

The rationale for the higher limit of 90% LTV for first-time buyers relates to the fact that these borrowers are significantly less likely to default than second and subsequent borrowers. This finding has recently been further supported by additional evidence on mortgage defaults occurring since 2013.

This approach has been taken to address concerns regarding fairness, access to mortgage finance and homeownership for first-time buyers and was informed by the empirical research.

A first-time buyer is defined as a borrower to whom no housing loan has ever before been advanced. Where the borrower under a housing loan is more than one person and one or more of those persons has previously been advanced a housing loan, none of those persons is a first-time buyer.