A rule that often means it is not financially viable for older people to take out a bridging loan when they attempt to downsize is to be scrapped.
The Central Bank has decided bridging loans taken out by downsizers will be exempted from the rule that limits how much they can borrow.
Tánaiste and Finance Minister Simon Harris has welcomed the change.
The move could free up thousands of homes for young families if older people can find suitable homes to move to.
The current rule means that downsizers have to be assessed as if they are taking out a new mortgage when they apply for bridging loans. Because many of them are on pensions or have a low income, they often do not qualify for bridging loans.
Most people who downsize need a bridging loan to buy a new home while they wait for their existing one to sell.
Otherwise they would be forced to find somewhere to rent while they wait for the purchase to be completed.
People taking out a bridging loan will still need a deposit of at least 10pc of the value of the property they are buying
Under the current rules, all second-time buyers can borrow only three-and-a-half times their income. This is called the loan-to-income rule.
It is seen as too restrictive for downsizers because it blocks pensioners in particular from getting a bridging loan.
The maximum length of a bridging loan under the new exemption will be 18 months and it applies to residential borrowing only.
The change will be implemented by the Central Bank in the coming weeks.
No change is being made to the loan-to-value rules, which means people taking out a bridging loan will still need a deposit of at least 10pc of the value of the property they are buying.
However, the exemption could encourage thousands of “empty nesters” to sell their large homes and move to ones more suitable to their needs, thus freeing up homes for younger families.
There is no suggestion from the Government that older people would be forced to downsize.
Previous suggestions that older people in large properties should move home to free up the houses for younger families have drawn backlash from groups representing the elderly.
Most older people want to stay in their homes, according to surveys, and they resent suggestions they should move to somewhere smaller.
However, others see trading down as a viable move that would free up funds.
The Central Bank of Ireland. Photo: Getty
An ESRI study in 2024 found Irish people generally live in larger homes than people in other EU countries and cited an “elevated level of under-occupation”.
It found that more than 88pc of people aged over 65 live in under-occupied accommodation.
The Government has committed to initiatives to get older people to trade down to help ease the housing crisis.
A Central Bank committee that looked at the issue at the end of last year concluded that a change to the loan-to-income rules for downsizers was needed.
The committee said regulator rules “should not impede market functioning or the mobility of downsizers unnecessarily”.
The Tánaiste wrote to Central Bank governor Gabriel Makhlouf this week to support the initiative.
“This is an important measure in our efforts to increase housing choice for older people and I commend the Central Bank and Governor Makhlouf for adopting such a sensible, pragmatic approach,” Mr Harris said.
He said the delivery of more suitable homes for older people and supporting people who wanted to downsize was an important element of the Government’s overall approach to housing.
Consumer protection rules apply and institutions must fully inform borrowers of the risks
He said the change would particularly benefit people who may be retired, on lower incomes and who wanted to buy a smaller, more suitable property.
Last November, Bank of Ireland piloted what it calls Trade Down, a bridging loan for older people who are downsizing. Interest is charged at 7pc.
ICS Mortgages also has a bridging loan, but it is considered expensive because the interest rate is as high as 10pc.
It is hoped the scrapping of the loan-to-income rule for downsizers will encourage more lenders to offer bridging finance and at more competitive rates.
One source said the change did not diminish the broader obligations of lenders to their customers.
Consumer protection rules apply and institutions must fully inform borrowers of the risks and ensure that bridging finance is appropriate for each customer’s circumstances.
Before arriving at its decision, it is understood the Central Bank engaged with civil society stakeholders and with the lenders.
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