Thursday 19 October 2017

The mortgage maze

Charlie Weston

Charlie Weston

GETTING a mortgage is like negotiating a maze for new buyers. That is especially the case in a mortgage market that is in recovery after a severe collapse.

Key questions are, who is lending and how much can you borrow?

To help first-time buyers, we asked a series of questions of Trevor Grant of the Association of Expert Mortgage Advisors. This is a new group made up of people with long-standing experience in the mortgage market.

Who is lending? And what deposits and other criteria have these lenders in place for borrowers?

AIB (including EBS), Bank of Ireland (including ICS), KBC Bank, Permanent TSB, and Ulster Bank are all lending at varying degrees, Mr Grant said.

The maximum loan-to-value and, therefore, deposits required are as follows: AIB is lending up to 92pc of the value of the property, BOI/PTSB/Ulster Bank are lending 90pc, and KBC Bank lends up to 80pc. This means that if you want a mortgage from Bank of Ireland you will need a deposit of at least 10pc of the value of the property you are buying.

Overall, there is more credit available in the mortgage market now than there was 12 months ago. However, we still need more lenders who are committed to lending, the mortgage expert said. Mortgage applications are being approved, provided they are presented correctly, and are in line with lender credit policy.

Having a broker on your side is likely to help when getting mortgage approval, Mr Grant added.

How much can you borrow?

Lenders will only approve perfectly-packaged applications which tick all the boxes, Mr Grant said.

From a borrower's perspective, it's a one-shot only exercise.

It is not the lender's responsibility, or practice, to interpret or work out what has not been explained to them.

Any potential issues that might stand out (and there are many nowadays) need to be dealt with and explained to the lender in mortgage language at application stage, he explained.

The current mortgage underwriting practice is exacting and thorough – with an understandable "when in doubt, decline" approach invariably adopted.

Unfortunately, a decline today can affect an application next month or next year, Mr Grant said.

Normal lender criteria is applied to each application – this entails a combined assessment of the following:

• Satisfactory security – some banks are now restricting loan to value on apartments. In other words, you may require a bigger deposit if you are buying an apartment.

• Income must pass a gross multiple or net disposable income test.

When it comes to employment, you must be in a permanent position. In rare circumstances contracts are considered on a case-by-case basis, Mr Grant said.

Earnings of up to 50pc of additional income over basic salary may be taken into consideration, but on average it is 25pc.

You need to have a savings or deposit record. Gifts from an immediate family member will be accepted for deposit purposes.

Evidence of repayments capacity (proven ability to repay the mortgage amount) is necessary.

Applicants have to be 18 or over, and not older than age 70 at the end of the mortgage term. The maximum mortgage available to Irish residents is 92pc. Applicants need to have a good credit history.

While the above are primary considerations, certain factors will be held as "red flag" when assessing a mortgage application, he said. For example, the use of overdrafts (authorised or otherwise), credit card cash withdrawals, and gambling transactions.

What can go wrong?

The process is just like applying for a mortgage for your dream home; you should start well in advance.

You need to prepare your mortgage CV, readjusting small but critical financial habits to ensure that your six-month track record is in line with lender policy to get your mortgage application approved.

It's the simple things that can have a negative impact on your application:

• Having an overdraft, authorised or otherwise.

• Online gambling referred to on your bank/credit card statements.

• Cash advances on credit cards, even on holidays or using to supplement lifestyle.

• Paying rent by cash (even at home) and not documenting payments. The bank may assume that you didn't pay it.

• Having savings, but unable to show any savings pattern.

• Other erratic spending patterns on your current account.

• Referrals or unpaid items on your current account.

What documents do I need?

In order to successfully apply for a mortgage you need to submit the following documentation:

• Income evidence (P60, payslips, letter of employment confirmation from your employer).

• Background information regarding your employers business.

• ID (driver's licence or passport and a utility bill).

• Six months current account statements.

• A savings record.

• Existing loan statements (if applicable).

• Evidence of repayment capacity.

Mr Grant commented: "Whilst on the surface this may simply appear an exercise in gathering paper, a blip in any one of these items and your application may well be declined." He said all of the documentation needs to be perfectly presented.

Many customers can be "coached" on good financial habits in order to manage their financial affairs in a more appropriate manner.

Such an exercise is worthwhile and can subsequently lead to mortgage approval, he added.

The good news is that there are a number of banks lending, and if you are in secure employment, able to demonstrate repayment capacity, and have a good credit history, your mortgage application should be approved, Mr Grant said.

Irish Independent

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