Tuesday 28 March 2017

Home truths: key factors when trying to get a mortgage

A permanent employment contract, a clean credit rating and a history of savings are key factors that will help mortgage seekers pass banks' rigorous stress-testing, writes Charlie Weston

Young people planning to buy a home need to have a clean credit history, while banks are reluctant to fund purchases of apartments
Young people planning to buy a home need to have a clean credit history, while banks are reluctant to fund purchases of apartments

OUR banks are banjaxed and are reluctant to lend money. Last week, this newspaper revealed that the switcher market for existing homeowners had effectively been shut down.

AIB, the best-value lender in the market, admitted it was no longer interested in this segment of the market.

However, the domestic banks claim they are lending to first-time buyers.

AIB and Bank of Ireland gave a commitment to the Government, as part of the deal that saw €3.5bn injected into each of them, that they would continue to support new home buyers.

However, the Professional Insurance Brokers Association begs to differ and claims that between 60pc and 80pc of mortgage applications are currently being turned down.

So, just how easy is it for a new buyer to get a mortgage?

Financial adviser Karl Deeter of Irish Mortgage Brokers says we have reached a point where bank staff are now almost being praised for not lending, rather than for approving a mortgage application.

"Mortgages are tight at the moment and banks are underwriting forensically," says Karl.

"They don't want to introduce any additional risk to their lending and are not lending if there is a hint of risk."

Waterford-based Patricia Foskin of Foskin Mortgages and Finance had just spent a frustrating morning arguing unsuccessfully with banks over their refusals to approve mortgages when the Irish Independent caught up with her.

She was particularly annoyed about a client of hers who worked in the public service, and so had a guaranteed job, yet was refused a mortgage.

Ms Foskin claimed that lenders were only giving mortgages to those who reach minimum income levels.

A single person would need to have €1,500 left over each month after meeting their mortgage and other loan payments before being approved for a home loan, she said.

For a couple, the income threshold is €2,500. You then need to add €500 for each child. So a couple with one child would need income, after meeting all lending repayments, of €3,000 before getting the green light for a mortgage from a bank, Ms Foskin said.

And banks and building societies will not count the monthly children's benefit payments from the State, which is €150 per child.

Director of marketing at Irish Mortgage Corporation, Frank Conway, said: "In many ways, we have returned to the 1980s."

Lenders are now using a number of key criteria before they will even consider a mortgage application.

Employment

All applicants must have a permanent employment contract. Employment types are also a problem, as with some jobs it is impossible to get approval, Mr Conway said.

These can include self-employed builders, landscape gardeners and even architects.

"I would go so far as say that those in the finance sector may struggle to secure a mortgage, especially if there is the prospect of layoffs," he added.

Savings

Lenders desperately want to see a history of saving. It is seen as a proxy for your ability to repay the mortgage.

"Also, I would say to anyone that pays rent to keep accurate records of their rent payments as banks will take this into account," Mr Conway added.

Property types

Generally, lenders are not keen to fund the purchase of apartments, especially in an area with a large concentration of investment properties.

"There is also a lack of appetite for some rural property types. Site costs for self-builds are not high on the agenda for lenders and they will always look at the re-sale value of a property now before they lend," Mr Conway says.

Lenders are much more keen to lend in urban areas with better prospects for resale.

Credit

All mortgage experts agree that this is a major factor.

Any delinquencies showing up on a personal credit report will be a big reason for denial.

Anyone consistently living on their overdraft facility would be a problem for lenders as they would see it as an indication of living beyond one's means.

Mr Deeter calls this "hardcore borrowing" where an overdraft is used to fund day-to-day living expenses.

Prospective buyers are advised to check their personal credit reports with the Irish Credit Bureau to see if they are good mortgage prospects and to make sure there are no mistakes on the credit report.

Irish Independent

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