10 steps to getting on the property ladder (in just six months)
First-time buyers face huge problems getting on the first step of the property ladder, but we have a six-month total financial fitness regime to get you over the line.
There has never been a tougher time to be a prospective first-time buyer. Supply of housing is at an all-time record low and, new homes, the traditional target of a first-time buyer (which have traditionally made up roughly a third of all purchases) are being built in very limited numbers. Worse again, those that have come to market are often aimed at higher earners as highlighted in a report published by the Dublin Task Force, which says that only "limited product" was being constructed, priced at €300,000 or below.
House prices as a portion of income are at an historic high. Whereas a starter home's value was the equivalent of roughly half a year's salary in the 1970s, and close to two year's salary in the 1990s, today a city semi stands at around €300,000 - representing 10 times a fairly average €30,000 salary.
Before the crash, deposits could be sourced from the Credit Union and the banks wouldn't know the difference. Today Credit Unions have tightened their lending criteria and most are registered with the Credit Bureau, meaning that banks have access to the details.
Deposits have never been higher. A survey conducted in March by the Banking and Payments Federation suggested that the average amount required now stands at €51,000. Those who want to buy are also generally renting and soaring rents have also been cited as preventing the saving of deposits.
A survey published last week by Behavior and Attitudes and commissioned by 11 groupings within the property sector says that 71pc of those who want to be first-time home purchasers have been impacted by the Central Bank's lending restrictions introduced almost two years ago, and that 69pc have postponed buying as a result. Those surveyed estimated on average that it would take six years and six months for them to save their required deposit, and two in five have yet to start saving. Two thirds say their ability to save is impacted by high rents.
The role of the bank of mom and dad in raising a deposit has also been highlighted, with 42pc stating they will require a financial gift from family to make it over the line. More than half (52pc) are already excluded from the area they want to live in based on affordability.
Michael Dowling, chairman of the Irish Broker's Association mortgage group, a sponsor of the survey, says he never remembers a tougher time for FTBs. But he says that many who might qualify for a mortgage won't because they don't prepare themselves adequately before applying.
"These days banks will not only look at what your salaries are, but they'll want to know what your other loans are and they'll put your spending and saving patterns under a microscope.
"They'll also want to stress test your mortgage at a higher rate. So you shouldn't forget that if the current interest rate is 3.5pc, they're actually going to assess your repayment ability at 6.25pc. These days brokers have become experts at what we call 'mortgage coaching' - that is improving your saving and spending habits to optimise your chance of success when you apply. Improving these over six months can be enough to make the difference."
So in tandem with the Irish Brokers Association (IBA), here is your six-month Operation Transformation fitness regime to change your habits and transform you from a renter, into a bona fide first-time buyer:
1 Start Saving
Help prove to the bank that you are a steady saver. Don't save in your current account. Do open up a dedicated deposit account and save the same amount each month. Irregular amounts work against you.
2 Start Paying Your Rent by Standing Order or Direct Debit
Steady payment of rent demonstrates an ability to repay a mortgage. Don't pay your rent in cash because the banks won't believe you. Nor are they likely to accept physical receipts from your landlord nor rent books. Put it on the record. If you're paying rent at home to your parents, do it by standing order or direct debit.
3 Trim your Spending Habits
Cut out all big spends in restaurants and clothes shops which record on your card or bank details. Never, never use your credit card to withdraw cash. Banks look upon Saturday night withdrawals on credit cards as inability to manage your finances.
4 Put Manners on your other loans
Banks will look at all other loans. Most Credit Union loans are now open to bank scrutiny. Car loans and credit cards should be paid down as quickly as possible, if possible. At the very least never miss repayments.
5 Research Yourself
The banks will want to go through your financial records with a fine tooth comb. Look through yours first so that you are prepared to explain any payments they might scrutinise.
6 Ignore Online Mortgage Calculators
These are a marketing tool whose results bear little semblance to what you will actually be permitted to borrow. Remember too that the banks will be lending to you at a stress-tested rate that could be 3pc higher than current interest rates.
7 Beat the Bounce
Always, always ensure that there is cash on deposit to meet all of your standing order and direct debit payments. Bounced payments or cheques each represent a big black mark against your chances of success. Eliminate all referral fees. While your bank may allow you to go over your agreed withdrawal limit, this also represents a hindrance to your chances.
8 Get On The Job
Don't decide to take six months out to "find yourself" or even move job during the period you are in mortgage "training." Banks want to see you in a stable job for a period of 12 months or more, and those who move around frequently are seen as fickle. Be aware that your bank will also check the financial health of your employer and those who have been with the same company for 15 years can be refused a loan because their employer is in a position of financial ill health. Banks can check your Linkedin for employment history. Don't have your income statement faked by a friend at your company as the bank will likely ring your head of HR to confirm the details are correct.
9 Stop Gambling With Your Mortgage Prospects
If you like a spot of online gambling, cut it out - completely. Harmless though you might deem it to be, banks see regular gambling as an issue and online activity shows on your bank records. At best the amount you gamble will be considered to have the status of a "loan" and will be subtracted from the amount they believe you can repay. This doesn't just include bookies, but online bingo and other paid for games.
10 Appoint a 'personal trainer'
Professional mortgage brokers make a living out of knowing all the angles. Like a personal fitness trainer they can put a financial coaching regime in place to suit your own circumstances and help you stick to it.