The Central Bank of Ireland has established several mortgage measures that are intended to safeguard the long-term resilience of the Irish financial system by protecting financial stability. The measures work to achieve this goal by regulating lenders to ensure that they are lending out money in a smart, ethical manner. These measures also work to protect borrowers by limiting the loans that lenders can grant them.
Central Bank Mortgage Measures
There are two main types of mortgage measures set by the Central Bank of Ireland: Loan-to-Value Limits and Loan-to-Income Limits. The Loan-to-Income Limit designates the loan amount that a borrower can be approved for based on their income. The measure states that individuals can be granted a loan up to 3.5 times their gross annual income.
The Loan-to-Value Limit determines the deposit amount that is required to be provided by the borrower, and it is dependent on the category that the borrower fits under. First-time home buyers must have a 10% minimum deposit, second and subsequent home buyers must have a 20% minimum deposit, and buy-to-let buyers must have a 30% minimum deposit.
So, what is a buy-to-let mortgage?
Buy-to-Let Mortgage Explained
A buy-to-let mortgage is a type of mortgage in which the loan is provided to borrowers who intend on using the property strictly as an investment, as opposed to the property serving as a place to live. Essentially, borrowers who want to take out a buy-to-let mortgage want to use the property as a real estate investment rather than a home.
Who Are Buy-to-Let Mortgages For?
A buy-to-let mortgage can be a great tool for real estate investors and prospective or current landlords. Like all other types of investments, a buy-to-let mortgage incurs a degree of risk. Therefore, those planning on applying for a buy-to-let mortgage must understand the risks that are associated with the investment and have a plan in case something goes wrong.
Typically, those applying for a buy-to-let mortgage already own a home, whether they own it with a mortgage or outright. A primary requirement of investors applying for a buy-to-let mortgage is good credit. Lenders want to see that buy-to-let borrowers have the capability to make the monthly repayments. Lenders can identify this ability to repay the loan by analyzing spending history, credit card statements, income, etc. Creditworthiness is a major requirement that borrowers must be able to display when applying for a buy-to-let mortgage loan.
Buy-to-let mortgages are essentially an investment tool for the borrower, and they can be a great option for real estate investors and landlords.