If you have yet to dip your toe into the world of property ownership, you might be unsure as to what a mortgage actually is, so let us clear it up for you. A mortgage is a long-term loan used to fund the purchase of property and will likely be required if you are buying a home. You can be eligible for a loan from a local authority if a commercial lender (bank) won't provide you a mortgage. Your home will be used as collateral for the loan, so you must make your payments on time to avoid losing it.
If it's been a while since your previous purchase or if you're planning to upgrade, take some time to familiarise yourself with the Central Bank's regulations as covered on the Citizen’s Information website. They currently set the limits on how much money banks can lend and how much money you may borrow. A recent announcement from the Central Bank means that from the 1st of January 2023, first-time buyers will be able to borrow 4 times their gross annual income, up from 3.5. Although first-time buyers will still require a deposit of 10 percent and any non-first-time buyers will need 20 percent.
You may have already started the hard work to get a mortgage. Whether that is moving back in with the folks, missing nights out with friends or having homemade sandwiches for lunch. But did you know, having the cash for a deposit may not be enough? Banks and building societies look at how you spend, not just how you save, when they are assessing you for a mortgage.
Here are six things to avoid if you are looking for mortgage approval in Ireland:
Missing bills and being hit with a so-called referral fee or unpaid item fee is something you want to avoid at all costs. It’s all about showing your lender you can efficiently and reliably manage your money. A referral fee is when your bank goes to take a payment such as a direct debit or standing order from your account, and when paid, puts you into an unauthorised overdraft or negative balance.
The charge with most banks is usually €5 per payment up to a maximum of €15 a day. An unpaid item fee is when the direct debit or standing order isn’t paid at all and is returned. This charge can be as high as €10 or more per payment with some banks. Avoid these fees at all costs - as well as being bad for your pocket, they will seriously hinder your mortgage application. The same advice, obviously, goes for missing any loan repayments.
If you are in the process of saving for a mortgage it is worth getting a credit report from the Central Credit Register, which was established by the Central Bank of Ireland, particularly if you may have missed a payment or two on a student credit card while at college. Their website states that turnaround time should be about 10 days, once all documentation has been supplied. If your missed or failed repayments are more recent, they may stop you getting mortgage approval, even if you have saved a deposit.
Your bank accounts are one of the first things that banks will look at, so you better make sure they are in shape. Most institutions will want to see records from the last 6 months, so this is something you will need to start working on before you even get talking to a mortgage advisor.
Referral charges, overdrafts, car loans, unnecessary credit card charges, direct debits to a gambling account; all of these can mitigate your chances of getting either approval, or approval for the amount you desire. And remember, if you have a personal loan, such as for a car or college fees, it will impact on how much you can borrow so try and reduce if you can before applying.
Although it is likely many of us will hold 10 to 15 jobs in our lifetime, and despite most banks loosening their requirements for how long an applicant must have been employed before applying for a mortgage, most lenders want to see that you have been in your current role for at least 6 months and passed any probationary period before you will be considered for mortgage in principal. It is possible to pass probationary period earlier if you specifically request it from your new employer, but obviously this is never a guarantee. So it is not a good idea to change jobs right before applying for or during the mortgage process.
It goes without saying, but avoid the temptation to dip into your savings for something significant in the run up to meeting the bank. Although most lenders will be sympathetic towards the cost of a wedding or a car, if a promotion at work required you to have one, a holiday, shopping spree or frivolous spending will not be looked on as favourably. It’s very important to allow your savings build-up and to resist dipping into them to cover unnecessary expenses that can wait until you have your keys.
Regular savings are another essential component of demonstrating your capacity to pay your proposed mortgage rate. Savings on top of your current rent/mortgage payment may not be necessary if they roughly match the amount for the proposed mortgage you seek. Even if you don't need to save any additional money for your deposit, you should attempt to save every month if your anticipated mortgage repayment is much larger than your existing payments. It all comes down to demonstrating to the bank that you will be able to afford your mortgage payments.
But the way you make the savings is important too. This one catches lots of first time buyers out. Internet banking makes transferring money to your savings account easy, so you transfer it when you have it, right? This isn’t good enough for most banks, they want to see that for a period of at least 6 months you have been direct debiting a similar amount to a mortgage into your savings account or as rent.
Formalising the payment in this way shows you have a commitment to paying on a regular basis and that you have enough cash in your account to cover the repayment costs of the loan. However, bear in mind, you also need to save up for things like stamp duty, solicitor’s fees, land registry fees, and surveyor’s fees too.
Finally, while most banks won’t be concerned about a small flutter on the horses at Christmas or on the world cup final, if you gamble large amounts or regularly, it is something your bank will flag as a concern if you are getting a mortgage. It might prevent you from getting approval at all. If you are starting to save for a deposit, cancel your bookmaker accounts and delete any apps because you know, the house always wins.
Lenders naturally view investments in cryptocurrencies as dangerous due to the market's notorious volatility. This investment strategy is viewed differently by different lenders; some see it as being somewhat akin to gambling, while others view it merely as a speculative investment. Most lenders won't be concerned that you are investing in the crypto market as long as you are consistent with your investments and still have regular savings. Even your "repayment capacity," or the maximum amount you might theoretically contribute to monthly mortgage repayments, may be taken into account when calculating your monthly purchases.
If you only rarely invest in cryptocurrencies, be sure to do so with cash on hand and avoid taking money out of your regular savings to try to turn a quick profit. Avoid buying cryptocurrencies in the six months before you apply for a mortgage and instead put those funds into savings for a guaranteed improvement in your "repayment capacity" if you want to offer yourself the best chance with most lenders on the market.
Another thing to be aware of as a first-time buyer is home insurance. Most banks or building societies insist you have it to protect against damage to the property but you don’t have to take home insurance out with your mortgage provider. Get an online home insurance quote with AIG for great benefits and discounts.