Business Property & Mortgages

Thursday 28 August 2014

Home Economics: Answering your property questions

Sinead Ryan

Published 11/07/2014 | 02:30

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A reader wants to know if there is any way to know how the bank will assess them before they embark on house-hunting.  Photo: Frank McGrath.  McGrath.
A reader wants to know if there is any way to know how the bank will assess them before they embark on house-hunting. Photo: Frank McGrath.

My girlfriend and I are both prospective first time buyers. Is there any way of knowing how the banks assess how much we can borrow and also, what documents will they need from us? She is a nurse and I work as a self-employed mechanic.

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Sinead Replies: I wish more people asked this question before embarking on the mortgage process. Ken Murray of the Association of Expert Mortgage Advisers says: "The maximum mortgage available to Irish residents is 92pc, which means that you will have to have at least 8pc saved.

Your income must pass a gross multiple or net disposable income test, on top of this up to 50pc of additional income over basic salary may be taken into consideration, but on average it is 25pc.

A self-employed person will be scrutinised for three years of company accounts and three years' earnings backed up by Notice of Assessment and Revenue returns. Tax affairs must be in order. A nurse's income will be a combination of overtime, shift and allowances – lenders differ on how they treat these.

It would be advisable to show consistency, so three years' P60s would be a good idea. Lenders are cautious about putting any reliance on earnings which could be cut.

You will then need to provide repayment capacity by showing the lender you can meet the repayments. Six months' savings, rent payments or loan repayments are all good. They will then build in an extra 2pc in interest rate increases as a 'stress test'.

Make sure your banking records are all in good order and there are no credit card debts or, if possible, car or personal loans "outstanding".

Owner-Occupier

Our son is the only owner-occupier of an apartment in a block of 12. According to the management company, the other owners are not paying their management fees and have warned that there is a danger of the company being unable to pay the building insurance. Our son has always paid his charges promptly. What leverage has the company got to compel owners to pay up?

Sinead replies: Non-payment of service charge fees is a difficulty facing many multi-unit developments. Properties end up in disrepair as a result of insufficient income to maintain them.

Stephen Faughnan of the Irish Property Owners' Association says the management company is responsible for insurance, repairs and maintenance, provision of a sinking fund and common services.

"It may apply to the Circuit Court for an order to enforce the obligation to pay service charges imposed under the Act on non-paying parties, but this is costly and still may not result in the payment of the charges.

"Often a direct approach works best, with mortgagees contacting their clients and discussing the situation which often results in payment of the outstanding contribution."

Your son is in a tricky situation and I would urge him to do his best to compel the management company to chase all outstanding payments or contact the Residential Tenancies Board for advice.

The Ryan Review

SO, we know "average" Dublin house prices are up 22pc, but nationwide it's 10pc. In many cases, of course, it's nothing at all. So, the term "average" gets a beating.

Let us take solace in facts where we can. The headlining monthly price figures produced by the Central Statistics Office only include properties bought with a mortgage. In a "normal" market, this wouldn't matter. But with more than every second house purchased with private lucre, it's skewed.

Credit figures from the Central Bank underline this: mortgages affected fell by €300m last month. Homeowners are stepping up debt repayment in a liquidity spiral.

But investors' money is finite – it simply cannot be sustained over the medium term as those buying, mainly investors hoping to turn a buck – will start looking elsewhere as the heat rises.

No fear of it imminently, with buy-to-let shoppers accounting for 43pc of sales last quarter. But could we see a flattening of the market before the year is out? I wouldn't be jumping on the "buy now at any cost" bandwagon.

The term "Dublin" needs examining also. The increases, 4.2pc in May; 22.4pc up on 12 months, in reality only apply to a small selection of desirable postcodes and are still some 44pc off their peak in 2007.

"Nationwide" now refers not just to houses outside the Pale, but is lumping together those from functioning areas and the utterly stagnant rural areas. This several-tiered market cannot be taken as an "average". Disraeli may be more a predictor than property economists at the moment ... lies, damned lies and statistics.

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