Break the lending rules to buy your first home
House-hunters can still borrow up to four times their income - if they can get a mortgage outside the Central Bank's rules
Published 24/01/2016 | 02:30
Some house-hunters can still borrow as much as they could before the Central Bank's lending rules kicked in, an analysis by the Sunday Independent has found.
It's almost a year since the Central Bank first introduced its controversial mortgage rules. Those regulations doubled the deposit that trader-uppers must have when getting a mortgage. First-time buyers after homes worth more than €220,000 (as most properties in Dublin are) have to stump up larger deposits than had previously been the case. The rules also prevent you from borrowing more than three-and-a-half times your salary.
However, in some cases, you may be able to break Central Bank rules - and this is why some people can still borrow the same amount of money today as they could before the regulations were introduced.
The Central Bank allows some exceptions to its loan-to-income rules, which restrict your mortgage to three-and-a-half times your salary. Should you qualify for such an exception, you could borrow more than that multiple of your income.
The Central Bank also allows some exceptions to its loan-to-value rules. Should you qualify for such an exception, you could secure a mortgage with a smaller deposit than the rules stipulate.
The Sunday Independent teamed up with Michael Dowling, chairman of the Irish Brokers Association's mortgage committee, to find out the maximum mortgage you could get today - if you qualified for an exception to the Central Bank's loan-to-income rules (which restrict your mortgage to three-and-a-half times salary).
A single first-time buyer on the average wage of €35,000 can expect to borrow up to €140,000 - or four times their salary - should they qualify for an exception to the loan-to-income rules, according to Mr Dowling. Otherwise, the rules must be followed and the maximum mortgage allowed would be €122,500.
This €140,000 loan is very similar to the mortgage that the same individual would have qualified for in June 2014 - about seven months before the Central Bank's rules came in, according to a survey of lenders by this paper at the time.
A single first-time buyer earning €35,000 in June 2014 would have been offered between €104,000 and €144,000, depending on the lender, according to that survey.
At €144,000, the maximum mortgage that that first-time buyer qualified for in June 2014 is very similar to the most he or she could borrow today - if they qualify for an exception to the Central Bank rules. At €104,000, the smallest mortgage the borrower qualified for in June 2014 was actually less than what they could get today under the rules.
It's a different scenario for couples, however.
A first-time buyer couple where each partner earns €35,000 could borrow €280,000 today, if they qualify for an exception. Otherwise, the most the couple could hope for is €245,000.
In June 2014, the same couple could have got a mortgage of up to €329,000 if they didn't have children - or €316,000 if they did have children, depending on the lender.
So the couple could have borrowed up to €84,000 more in June 2014 than they can today.
This is why many couples have found themselves priced out of the Dublin market - as well as areas near the capital. The average asking price for a property in Dublin is between €246,000 and €515,000, depending on the exact location, according to the latest report by Daft.ie. The same report found the average asking price in Wicklow to be €274,000.
Of course, even though some single first-time buyers on the average wage can still borrow as much today as they could before the Central Bank rules kicked in (as long as they get an exception), their chances of being able to buy a property with this mortgage are slim.
A mortgage of €140,000 (the maximum an individual on €35,000 can get today) will restrict the choice of properties to those in certain counties, such as Cavan, Mayo, Donegal, Roscommon and Laois - based on average asking prices in those counties.
Such a mortgage would not be enough to buy a typical property in Dublin, Kildare, Wicklow, Meath, Kilkenny and other counties.
Four times income
In general, you can expect to borrow up to four times your income today - if you qualify for an exception to the loan-to-income rules.
A single first-time buyer earning €50,000 could secure a mortgage of up to €200,000, should he get an exception. Otherwise, the maximum mortgage the individual could get is €175,000.
A first-time buyer couple where each partner earns €50,000 could borrow up to €400,000 using an exception; but only €350,000 should they not qualify for one.
That same couple could have borrowed almost five times their combined income back in September 2014, according to research by this paper at the time.
For most house-hunters, the only way to secure the mortgage needed to buy a property today is to get an exception from the Central Bank rules.
You can only get one exception - that is, you can get a mortgage outside of either the loan-to-income rules or the loan-to-value rules. You will not be granted an exception to both rules.
To qualify for an exception, you must have a minimum amount of income after paying your mortgage. "If seeking an exception as a single applicant, you must have a minimum income after mortgage repayments of between €1,100 and € 1,500 a month, depending on the lender," says Mr Dowling.
"If seeking an exception as a couple with no children, you must have minimum income after mortgage repayments of €2,500 a month. If seeking an exception as a couple with two children, you must have minimum income after mortgage repayments of between €2,500 and €2,600 a month, depending on the lender."
A savings history is also crucial.
For example, if seeking an exception so that you can borrow €200,000, you would need to show evidence that you have either saved or paid rent equivalent to €1,230 a month for the last six months. "A couple seeking €400,000 under an exception must show savings or rent paid of €2,460 a month for the previous six months," says Mr Dowling.
Before the Central Bank rules were introduced, it was possible to shop around, as some banks were more generous than others.
But shopping around won't secure you any bigger a mortgage today, as all banks are bound by the Central Bank rules and all will offer a similar amount - even within the exceptions.
Last week, this paper asked the various lenders how much they would lend various borrowers - within the exceptions - but they all refused to divulge figures.
None of the banks are easier to get an exception out of than others - but some may view your occupation more favourably than that of another applicant, says Mr Dowling.
"Banks could look more favourably on someone who is an accountant than someone working in retail," he says. "The location of where you're buying could also come into play - banks often look more favourably on someone buying in Dublin."
First-time buyers have been badly hit by the loan-to-income rules, while borrowers who want to trade up have been hit hardest by the loan-to-value rules.
"Borrowers who want to trade up and who are in negative equity have been really impacted by the rules - because of the 20pc deposit they need," says Mr Dowling. "We have a load of customers on good salaries and with clean credit histories - but who can't get the 20pc deposit together. That's causing huge problems for people."
Of course, even before you start thinking about qualifying for an exception, you need to ensure your finances are in order so you can get a mortgage. Any evidence of overdrafts, lavish credit card spending, outstanding debts, or an inability to pay bills will be frowned on.
"It is still very difficult to get a mortgage," says Dowling. "The bank's analysis of an individual's employment history is very rigid. It's very difficult to get a mortgage if you're on probation or contract."
You could also be turned down for a mortgage should your bank feel that you would be unable to cope with mortgage repayments if interest rates were to go up.
Earlier this month, new Central Bank Governor Philip Lane announced that the bank would review its controversial lending rules this summer. Should the rules be relaxed after this review - and house-hunters find it easier to buy property as a result - house prices could well start to tick upwards and quickly. There is a cohort of would-be buyers who haven't been able to buy under the current rules - but who might rush to buy should the rules be eased. Mr Lane has stressed the rules could be adjusted "upwards or downwards". However, the chances of the Central Bank making the rules any tighter, given the criticism of those regulations over the last year, are slim.
So a shrewd move by house-hunters could be to get onto the property ladder - or trade up - before the rules are examined and while property price growth, particularly in Dublin, is sluggish. You need to get the mortgage you need to buy a property first though - which is no mean feat.
Sunday Indo Business