Would-be first time buyers (FTBs) across the country are getting their affairs in order before year-end, to ensure they are primed and ready for action once new bank lending exemptions open again in 2019. This is according to experts at MyMortgages.ie, who say that although November and December usually see a slowdown in the number of mortgages written, these are the months when there is a lot of “behind the scenes activity”, as mortgage seekers begin undertaking the necessary preparation work to get their mortgage applications together. This comes on the back of the Central Bank’s announcement last week that there will be no changes to the mortgage lending rules and restrictions in 2019.
Joey Sheahan, Head of Credit at MyMortgages.ie, said they expect a busy few weeks ahead helping buyers go through their mortgage application checklists.
“The latest BFPI mortgage figures reveal that mortgages are increasing in terms of volume and value and that first-time buyers remain the single largest segment by volume – 48.3% – and by value – 48.7%. The Central Bank last week reaffirmed its commitment to the current lending rules, in which FTBs have two options – comply with the CBI’s general lending regulations, which impose a loan-to income restriction of 3.5 times gross annual income to all new lending for principal dwelling purpose, or aim to be included as part of the bank exemptions allowed by the CBI, whereby a limit of 90% loan-to-value applies on the first €220,000 of the property value.
“While not all banks are entirely closed to exemptions, and some are still reviewing applications on a case by case basis, most have reached their exemption quota. However, applicants will not have long to wait until exemptions open again in January 2019.
“Given the limits on lending and the lack of supply in many areas, it’s a very competitive market, and we have noticed that people are trying to get ahead, and make sure they are doing all they can to increase their chances of approval.”
The rent v buying conundrum
Experts at MyMortgage.ie say one of the biggest considerations for potential buyers is how much extra they would need for mortgage repayments versus the rent they currently pay.
Mr Sheahan says that most people don’t realise that their mortgage repayments could, in fact, be significantly lower.
“Rents are at an all-time high in the country and people are paying through the nose for properties that often do not meet all their requirements. And while the mortgage market too has its own challenges, when we break down the costs for people, they are often pleasantly surprised to learn that the cost of the mortgage they are looking for is significantly lower than the rent they are currently paying.”
Research from the Info Lab has revealed that throughout the country the cost of a mortgage is cheaper than the cost of renting. For example, in Cork the monthly mortgage repayment for a three-bed house is €720 whereas rent for the same property would be approximately €880. Similarly, in Galway a mortgage repayment for this property would cost €606 a month, while rents would come in at approximately €783. In Dublin it varies widely depending on location – for example in Dublin 10 a mortgage would cost €1,299 and rent would cost €1,777.
MyMortgages.ie are advising FTBs to begin the preparation work at least three, but ideally six, months out. The experts say all mortgage hopefuls should be aware of red flags that banks will look at initially, and which could prevent them from progressing through the mortgage application process successfully.
Mr. Sheahan advised: “Applying for a mortgage is a big undertaking – and one which needs to start months before the application forms are even looked at. You might only get one bite at the cherry with a lender, so it’s crucial you put your best foot forward.
“Before they will give any consideration to a mortgage application, a bank will first look the applicant’s credit history and their recent banking history. Ultimately, what they are looking for is a capacity to repay any loan tendered and a propensity to do so, as evidenced by past behaviour. There are several red flags that will put a lender off in part, or perhaps, in full, and applicants must ensure that these are not raised on their application.”
The MyMortgage.ie red flags list includes:
- Overdrafts – authorised or otherwise.
- Online gambling referred to on your bank/credit card statements.
- Cash advances on credit cards, even on holidays.
- Non-documentation of regular payments, such as rent.
- An irregular savings pattern.
- Erratic spending patterns.
- Poor credit rating.
Mr Sheahan advises mortgage seekers of the steps they should take to boost their chances:
- Rent – ensure this is paid through your bank account as bank will not accept this as proven repayment ability unless it is evidenced on your bank statement.
- Overdrafts – even if you have an approved overdraft facility, it is better not to use it on a regular basis.
- Credit cards – ensure balances are cleared each month. Not only will this portray a better picture of the applicant, it will save interest, with some credit card companies charging up to 18%.
- Loans – ensure all monthly repayments are fully up to date.
- Savings – transfer your savings into one account and save a regular amount each month – do not make any withdrawals from this dedicated savings account.
Mr Sheahan went on to outline other factors applicants should consider:
- Deposit – you do not need to have all of your deposit before you apply. Once you have confirmation that a gift is available, that will suffice for Approval in Principle.
- Employment – being in permanent employment is often a plus. But applicants will be reviewed on a case by case basis. If you are self-employed then you must ensure that you have all your accounts fully up to date and all relevant returns filed with Revenue. Contract workers should include a copy of their CV, as well as your last three P60s.
- Overseas buyers will need to request a copy of their credit history from the country in which they currently reside.
The MyMortage.ie FTB Checklist
You will need the following to ensure your application is complete:
- Photo identification.
- P60 for last year.
- Payslips – six most recent.
- Certificate of Income – to be completed and stamped by employer.
- Current Account Statements – last six months.
- Savings Account Statements – last six months.
- Credit Card Statements – last six months.
- Loan / Mortgage Statements – last 12 months.