First-time buyers lose as banks fail to use all mortgage exemptions

Thousands of would-be home buyers are being left "angry and frustrated" after jumping through all the hoops to qualify for the exemptions - which allow a minority of higher earning home buyers to borrow more than is strictly allowed.

Analysts blame the complexity of the rules, which makes it difficult for banks to know how many exemptions will be used.

They estimate that banks may have only issued income exemptions to 11pc of first-time buyers in the second half of last year, half of what they could have issued. This means thousands of potential new buyers could be missing out on getting a mortgage.

Under the rules, first-time buyers can borrow no more than three-and-a-half times their income and must have a deposit of at least 10pc. The surge in house prices over the past five years is leaving many unable to borrow enough under the rules to meet rising asking prices.

Leading mortgage broker Michael Dowling said this was leaving buyers "bitterly disappointed".

He said people were seeking exemptions to the lending rules, but even though they qualify, they were being told by the banks they were prevented from getting one.

After the shortage of homes, the mortgage lending caps are one of the main stumbling blocks for would-be buyers because they limit the amount they can borrow even as ordinary buyers are forced to bid against cash-buyers and so called cuckoo-funds.

Data from the Central Bank shows that last year lenders only issued 17pc of their mortgages with exemptions. However, lenders are entitled to issue exemptions for 20pc of the value of the loans they issue to first-time buyers.

Mr Dowling said: "Every day of the week I get asked by people why they can't get an exemption. People are very angry and frustrated when they are told they qualify for an exemption but they can't get one. And now we see the banks are not even using all their exemptions.

"Exemptions are needed but when people are qualifying for them and not getting them it means there is a lot of scope for banks to lend more."

People qualify for an exemption on the income limit if as a couple they earn more than €80,000 combined and have higher disposable income than other applicants.

Mr Dowling said brokers were inundated with people looking for exemptions. Banks undershot the exemptions limits for second-hand buyers as well. Just 7pc of second-hand buyers got exemptions last year but 10pc of loans issued to movers are allowed.

The rules have left banks struggling to maintain lending at a steady pace, adding to the difficulties for home buyers. Banking analyst with Goodbody Stockbrokers Eamonn Hughes said exemption levels may have fallen as low as 11pc in the second half of last year for first-time buyers.

"In our view, this would go some way to explain the sharp slowdown in mortgage drawdowns in the second half of last year versus the first half - a factor driven, we think, by the change in the exemption limits the prior November," he said.

Lenders said that part of the problem was that some buyers get mortgage approvals, with an exemption, from more than one bank. Banks don't know whether to include these exemptions in their calculations until the loans are drawn down.

A Banking and Payments Federation Ireland spokesperson said banks have to manage exemptions very tightly as they do not wish to breach the limits as this would not be tolerated by the Central Bank.

"The challenge they face is managing the pipeline between approvals and drawdowns as they have no way of knowing for definite if an approval will actually drawdown or the timeframe for a drawdown to take place."