How much can you borrow?

When giving you a mortgage, lenders use different criteria to decide how much they are willing to lend you and they must follow specific Central Bank of Ireland rules when doing this.

The Central Bank of Ireland’s rules apply limits to the amount that lenders in the Irish market can lend to mortgage applicants. These limits apply loan-to-income (LTI) ratios and the loan-to-value (LTV) ratios for both principle dwelling homes and buy-to-let properties and are in addition to the lenders’ individual credit policies and conditions. For example, a lender may have a limit to the percentage of your take home pay that can be used for mortgage repayments.

Loan to income limits

A limit of 3.5 times your gross annual income applies to applications for a mortgage for a principal dwelling home. This limit also applies to those in negative equity applying for a mortgage for a new property, but not those borrowing for a buy-to-let property.

Lenders have a certain amount of discretion when it comes to mortgage applications. For first-time buyers, 20% of the value of mortgages a lender approves can be above this limit and for second and subsequent buyers 10% of the value of those mortgages can be above this limit.

Loan-to-value limits

LTV limits mean you need to have a deposit of a certain amount before you can get a mortgage. There are different limits in place depending on what category of buyer you are.

  • First-time buyers need to have a 10% deposit
  • Second and subsequent buyers need to have a 20% deposit
  • Buy-to-let buyers need to have a 30% deposit

Lenders have a limited amount of discretion when it comes to these limits and in a calendar year can make exceptions for:

  • 5% of the value of mortgages for first-time buyers
  • 20% of the value of mortgages to second and subsequent buyers
  • 10% of the value of buy-to-let mortgages

These rules don’t apply to switcher mortgages and housing loans for restructuring mortgages that are in arrears and pre-arrears.

How much can you afford to borrow?

When making a mortgage application it can be tempting to apply for the maximum amount possible. However you need to make sure you will be able to cope with future events such as an increase in interest rates, having children, redundancy or illness.

  • You can use our budget planner to work out what you can afford to repay each month and make sure to include a regular amount for ‘unforeseen expenses’. You can use our mortgage calculator to see how much your monthly mortgage repayments would be.
  • If you have other loans or debt, your lender may offer you a lower amount, ask that you pay off these loans or refuse your application.

The shorter the term of your mortgage, the higher your monthly repayments, but you will pay less interest in total. With a longer term mortgage your monthly repayments will be lower, but you will pay more in interest over the lifetime of the loan.

Example:

Mortgage amount Term Interest rate Monthly repayments Total cost of credit
€200,000 20 years 3% €1,109 €66,206
€200,000 25 years 3% €948 €84,526
€200,000 30 years 3% €843 €103,554
Difference in cost of credit between 20 and 30 year terms €37,348

Even a small difference in interest rates can have a big impact on the overall cost of a mortgage.

Example:

Mortgage amount Term Interest rate Monthly repayments Total cost of credit
€200,000 20 years 3% €1,109 €66,206
€200,000 20 years 2.5% €1,059 €54,353
Difference in cost of credit between interest rates €11,853

When you apply for your mortgage, and over its lifetime, it is important to get the lowest rate possible as it can lead to significant savings.

As well as mortgage repayments there are other costs to consider when it comes to buying a home.

Haven’t found what you're looking for?