Saturday 22 November 2014

Which banks will lend the most to Irish home buyers

Published 29/06/2014 | 02:30

Illustration Tom Halliday.
Illustration Tom Halliday.

WITH house prices surging ahead, panic must surely be descending on Irish house-hunters. House price inflation has moved into double-digit territory for the first time since the recession – with Dublin prices soaring by 22 per cent over the last year.

With wealthy cash buyers snapping up more than half of the houses coming to market, those who have to borrow to buy a home are losing out to the cash-rich. It's just like it was during the bubble, with people worrying that their bank won't give them enough money. But who are the most generous lenders out there? The Sunday Independent teamed up with Michael Dowling, managing director of the mortgage brokers, Abacus Finance, to find out.

We found that Permanent TSB is the most generous for single people while KBC is the most generous for couples. Some banks will lend almost five times your income.

It is important not to overstretch yourself financially – and to get the cheapest mortgage you can. But if your main priority is to get the mortgage, you need to win a bidding race. Which lender will give you the most money?

Young, free and single

A single person on €35,000 can expect to borrow between €104,000 and €144,000 – four times their income.

The most generous lender in this case is Permanent TSB, which would offer a 30-year mortgage of up to €144,000, according to Dowling. AIB and EBS come in second place, offering a mortgage of up to €139,000.

Bank of Ireland and ICS are the third most generous lenders, offering up to €138,000. With a mortgage of up to €104,000, KBC Bank is the least generous of the six. Ulster Bank was offered the opportunity to provide figures for Dowling's exercise – but it declined.

The figures assume that the individual has no other loans and no children and are based on a 30-year mortgage.

Couple, no kids

Let's take a couple with no children where each partner earns €35,000. The couple have no other loans and are seeking a 30-year mortgage. The couple can expect to borrow between €278,000 and €329,000. The most generous lender in this case is KBC. It would offer the couple a maximum mortgage of €329,000 – almost five times their income.

Permanent TSB comes in second place, offering up to €305,000. The least generous lenders are Bank of Ireland, ICS, AIB and EBS. Bank of Ireland and ICS would offer a maximum mortgage of €289,000 while AIB and EBS would lend up to €278,000, according to Dowling

Couple, but with kids

Let's take a married couple with two children where each partner earns €35,000. The couple have no other loans and want a 30-year mortgage.

Banks will usually lend you less money if you have children. So the most this couple can borrow is between €209,000 and €316,000, according to Dowling.

The most generous lender is KBC, which would offer up to €316,000. Permanent TSB would offer the couple a maximum mortgage of €305,000. AIB and EBS would lend up to €278,000. Although this is the same amount that AIB and EBS would offer to a couple with no children, the parents could still get this mortgage as long as they have a certain amount of disposable income, according to Dowling.

The least generous lenders are Bank of Ireland and ICS, which would offer the couple up to €209,000. This is €80,000 less than what it would lend the couple if they had no children.

Getting over the line

Banks will look at a number of things before giving you the thumbs up for a mortgage.

"There are a number of non-negotiables when it comes to getting a mortgage," said Dowling. "You must, for example, have a proven repayment capacity."

This means that over the last six to 12 months, you must have either saved or paid rent equivalent to the repayments on the mortgage you are seeking – and have evidence (such as bank statements) to prove that. Your bank must also be happy that you can afford the repayments should interest rates increase by 2 per cent.

Those who are out of work can forget about getting a mortgage. You must be in permanent employment for at least a year.

"Some lenders are slightly more favourable towards different occupations than others," said Trevor Grant, chairman of the Association of Expert Mortgage Advisers (AEMA). "Professionals with good earning potential such as doctors and solicitors are often favoured by the banks – as well as professionals who have been in their jobs for a long time. Contracting can be tricky. If you're just in a new job on a new contract, you're not going to get approved. Historically, construction jobs would have got negative looks from lenders – but that view has receded recently."

Your bank and credit card statements must also be in good shape. Banks will want to see at least six months' current account statements and three months' credit card statements. Expect to get turned away if there is anything on these statements which suggests you're reckless with money or have trouble paying bills.

Some lenders also require you to have a certain amount of money to live on after paying for your mortgage and other major bills. This is known as 'net disposable income'.

The definition of net disposable income can vary across lenders. With AIB, net disposable income is the money which you have left after paying for your mortgage and other major financial commitments, such as childcare costs.

"The normal day-to-day running costs of a household are not deducted as the net disposable income is allocated for that purpose," said a spokeswoman for AIB.

With Permanent TSB, net disposable income is the money left after paying for "typical living expenses, with additional deductions for each dependant (linked to age), an allowance for childcare and a contingency for any additional monthly expenses."

With KBC, your disposable income must usually be at least twice your monthly mortgage repayments. "Applicants must provide detail on short-term loans, credit cards, overdrafts and any other financial commitments such as separated persons paying maintenance, creche fees and so on," said a spokesman for KBC.

Bank of Ireland and Ulster Bank would not specify how much net disposable income a borrower must have. First-time buyers can borrow up to 4.75 times their income with Bank of Ireland, according to a spokeswoman for the bank. Those moving home can borrow up to 4.25 times their income if single; or 4.5 times their income if a couple.

"We will consider a track record such as regular savings and rent paid, and we will want to ensure that a customer has money left over each month after paying their mortgage," said the spokeswoman for Bank of Ireland.

A spokesman for Ulster Bank said the mortgage approved "is not based on one fixed formula" but on a number of factors.

Get the house before the 2.5 kids

NO matter how cute you think kids are, it can be harder to get a mortgage once you have a few of them crawling about the place.

Before giving you the thumbs up for a mortgage, most lenders will check the amount of disposable income you will have left at the end of each month – after paying for your mortgage and other major bills.

Lenders must be happy that you have enough to live on after paying for your mortgage – and some require you to have a minimum amount of disposable income each month before they take you on. The more children you have, the more your disposable income may have to be.

For example, with AIB and EBS, your disposable income must be at least €1,300 a month if you're single; €2,050 a month if you're a couple. If you have children, however, you must have an extra €250 a month worth of disposable income for each child. So a couple with two young children must have at least €2,550 in disposable income a month to qualify for a mortgage with AIB – compared to the €2,050 that a couple without children would need.

The age of your children could also come into play. With Permanent TSB, your monthly disposable income must be at least €1,350 if you're single and €2,000 if you're a couple. However, you could need as much as €420 a month extra in disposable income if you have children, depending on their age. A couple with two infant children would need a monthly disposable income of €2,700 – but that increases to €3,040 if the children are teenagers.

Irish score below average on income

The last five or so years of austerity have certainly eaten into Irish pockets – Irish disposable income is below the international average, according to a new OECD study.

Ireland got only a 4.9 out of 10 for disposable income – less than Britain, France and Belgium. The US has the highest disposable income anywhere, with Alaskans and Californians particularly well off.

The US got a 10 out of 10 for disposable income – the only country to do so. US average disposable income per individual is €29,056 a year – more than the OECD average of €17,595. In Ireland, average disposable income came to €17,436 a year.

However, there is a considerable gap between the richest and poorest in the US – the top 20 per cent of the population earn eight times as much as the bottom 20 per cent. In Ireland, the gap between the richest and poorest is still high but not as high as in the US.

Other countries where disposable income is high include Luxembourg (8.8), Switzerland (8.5) and Australia (7.3 out of 10). The number of Irish people in paid jobs is also below the international average.

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