How much of a mortgage can you get?
Lenders use different ways to work out the amount of money they will lend you for a mortgage, and they have to follow certain Central Bank rules when doing this. Some will lend you a multiple of your annual income. Others will try to make sure that your monthly mortgage repayment doesn’t go above a certain percentage of your take-home income or that you have a certain amount of money to live on each month after all your commitments are met.
What percentage of the property value can you borrow?
On 11 February 2015, new Central Bank rules came into effect. These rules apply limits to mortgage lending by regulated financial services providers (lenders) in the Irish market.
These limits apply to loan to value and loan to income measurements for both principal dwelling homes (PDH) (i.e. a home that you will live in yourself) and buy-to-let mortgages (for a home that you buy to rent to someone else). The limits are in addition to lenders’ credit policies and don’t replace a lender’s responsibility to consider affordability when assessing a mortgage application.
Loan to Income (LTI) restrictions
A limit of 3.5 times gross annual income applies to all applications for a PDH. This means that all people applying for a mortgage to buy their own home can only borrow up to a maximum of 3.5 times their annual gross income. This LTI limit also applies to borrowers in negative equity applying for a mortgage for a new property. The LTI limit does not apply to housing loans for buy-to-let properties.
Loan to value (LTV) restrictions
Principal Dwelling Homes (PDHs) – first-time buyers
From 1 January 2017, new Central Bank rules came into effect around LTV limits for first-time buyers:
- The limit on the LTV ratio for all first-time buyers is 90%. Previously, the rules allowed first-time buyers borrow 90% up to €220,000 and 80% of the balance above €220,000. This is no longer the case, and first-time buyers can now borrow up to 90% of the total value of a home, so will need a 10% minimum deposit
- Valuations that a consumer has had carried out on a house will now be valid for a period of four months, because sales can take longer than the average three months
For more information, visit the Central Bank of Ireland’s website.
Principal Dwelling Homes (PDHs) – non first-time buyers
For non first-time buyers of a PDH, a limit of 80% LTV applies on new mortgage lending, meaning you can borrow up to 80% of the value of the property, and will need a 20% minimum deposit. For example, if you want to buy a house worth €200,000, your lender may lend up to €160,000. You will have to fund the remaining €40,000 yourself. The LTV limits do not apply to borrowers in negative equity applying for a mortgage for a new property.
Buy-to-let mortgages (BTL):
For buy-to-let mortgages, a limit of 70% LTV applies. This means that if you want to buy a property to rent out to someone else, you can borrow up to 70% of the value of the property, and will need a minimum 30% deposit.
These rules do not apply to switcher mortgages and housing loans for restructuring mortgages that are in arrears or pre-arrears.
For more information visit the Central Bank of Ireland’s website.
How much can you afford to borrow?
While it can be tempting to borrow as much as possible, you need to make sure you will be able to cope with future events such as higher interest rates, having children, illness or redundancy.
- Use our budget planner to work out what you can comfortably afford to repay each month. Include a regular amount for ‘unforeseen expenses’ in your budget.
- Use our mortgage calculator to work out the cost of your monthly repayments.
- If you already have other loans, your lender may offer you a smaller mortgage, ask that you pay off your other loans before they will approve you for a mortgage or may refuse your application.
With a shorter term mortgage, you will have higher monthly repayments. But because you are repaying the mortgage over a shorter time, you will pay less interest in total. With a longer term, you will have lower monthly repayments, but you will pay more interest over the term of the mortgage.
|Mortgage amount||Term||APRC||Monthly repayments||Total interest paid over mortgage term|
|Difference in interest paid between 20 and 30 year terms||€51,712|
Use our mortgage calculator to compare monthly repayments for mortgages over different terms, and with different interest rates.
Even a small difference in interest rates can have a big effect on a mortgage:
|Mortgage amount||Term||APRC||Total interest paid over mortgage term|
|Difference in interest paid||€29,787|
Other costs to consider
Remember to also take into account other costs involved with buying a home, which may include:
- Valuation fees, usually €100 to €150. This pays for a professional valuer to give your lender an estimate of a property’s market value. Lenders will usually refund the valuation fee if your mortgage is not approved.
- Legal fees. You need a solicitor to look after the legal aspects of your mortgage. Fees vary, and may be either a percentage of your mortgage, or a flat fee. So, before you choose a solicitor, ask about their professional fees and other costs you have to pay, such as land registry and search fees.
- Stamp duty which is currently charged at 1% of the value of the property up to €1,000,000 and 2% for anything over that.
- Surveyor or engineer fees to look over the house before you buy.
- Cost of appliances, furniture and other contents for your new home.