The Central Bank has announced a change to its residential mortgage lending rules, which will provide greater flexibility for lenders to provide bridging finance.
Bridging finance is short-term finance - with a maximum term of 18 months - which can be used to purchase a new property before the sale of an existing property.
Unlike standard mortgages, these loans are repaid from the proceeds of the property sale rather than from regular income.
The Central Bank change will remove the loan-to-income limitation for borrowers who wish to obtain bridging finance, which is especially welcome for many borrowers trading down who may be retired and have lower incomes.
The Loan-to-Income limit is a maximum of four times gross annual income for first-time buyers and three and a half times gross annual income for second and subsequent buyers
"The amendment recognises that bridging finance products are a feature of the evolving Irish mortgage market and ensures that the regulatory framework adapts appropriately to continue to support market functioning without compromising lending standards or resilience of borrowers and lenders in the mortgage market," the Central Bank said.
The Central Bank's Deputy Governor Vasileios Madouros said the targeted amendment reflects its commitment to ensuring the mortgage measures remain fit for purpose as the market evolves.
"Bridging loans serve a purpose in helping homeowners move between properties, and the LTI limit is less relevant for products where repayment comes from asset sale proceeds rather than regular income," he said.
Tánaiste and Minister for Finance Simon Harris said the change marked an important measure in the Government's efforts to increase housing choice for older people.
"I commend the Central Bank and Governor Makhlouf for adopting such a sensible, pragmatic approach," Mr Harris said.
"This change to the lending rules is in line with the Government's housing plan commitment on the availability of bridging finance to support rightsizing. It is an important measure in our efforts to increase housing choice for older people and I very much welcome the development," he said.
"This change can facilitate the provision of additional bridging finance while maintaining the protections that the mortgage lending rules provide for the financial system and consumers," he added.
The Central Bank said it will monitor the operation of the exemption and the monitoring will form part of its ongoing regular assessment of the mortgage measures to identify any unintended consequences or emerging risks.
It also said the mortgage measures do not aim to replace lenders' own "prudent" underwriting criteria.
"Lenders must continue to assess the suitability and affordability of bridging loans for individual borrowers. Consumer protection rules also apply in full to these products," it said.
"Borrowers must be fully informed of the risks, and lenders must ensure that bridging finance is appropriate for each customer's circumstances," it added.
