Negative equity: New deposit rules will not apply

Borrowers in negative equity – where the value of their existing property is less than the outstanding mortgage – will not have to find a 20pc deposit to secure a new home.

However, an upper mortgage limit of 3.5 times salary does apply to these homeowners hoping to trade up or move house.

In addition, the Central Bank says that banks can apply stricter lending standards if they deem it necessary.

Governor Patrick Honohan said that fewer than 300 loans to borrowers in negative equity were issued last year, and that the new rules around deposits would not apply to them.

However, the loan-to-income rules – where the maximum mortgage was limited to 3.5 times gross salary – would apply as it was a “very important part” of the new arrangements.

As many as 40pc of mortgage holders are believed to be in negative equity, and the exemption to the new rules is designed to avoid an “unduly limiting scope” to the new arrangements.

The new rules allow the lender to exceed the 3.5 times income limit for up to 20pc of all new lending in one year, but expert Brendan Burgess said that those limits were unlikely to be breached.

“In practice, it’s probably unlikely that the lender will exceed the 3.5 times limit,” he said.


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