The announcement by the Central Bank that it had tweaked the mortgage lending rules will make the use of bridging loans a more viable option for many existing homeowners and is a welcome development.
The housing market has been dysfunctional since the property crash in 2008. There is a chronic undersupply of housing units of all types.
The Central Bank move is mainly targeted at older homeowners and should help this group to trade down to smaller housing units with greater ease and flexibility. Bridging loans have a maximum duration of eighteen months and enable a homeowner to buy another house before selling their primary residential property.
The bridging loan is repaid in full when the original property is sold. However, in the past people taking out bridging loans had to comply with the Central Bank’s strict loan-to-income limits. The Central Bank has removed these caps for bridging loans, which will greatly increase their appeal and use.
RM Block
The need for this type of financing is underlined by a 2024 report from the Economic and Social Research Institute (ESRI). It found that two-thirds of Irish homes are under-occupied, which is the third highest rate in the EU. In turn, if more people can be encouraged to trade down, then the supply of family homes will increase.
The issues stopping people from doing this go beyond finance, however. A lack of options to which to trade down is the most significant blockage for many, who understandably often want to remain close to where they already live. Lower priced new or second hand homes in good condition are hard to find..
Bridging loans remain expensive and carry some risks. Those availing of them would be advised to have a signed contract for the sale of their existing property and to look carefully at interest costs and fees. Part of the goal of the Central Bank policy is to make it a bit easier for smaller lenders to enter the bridging market. This could provide a welcome increase in competition and lead to a reduction in cost.
