Now is the time to get training for a mortgage
Published 03/02/2012 | 05:00
House hunters who are planning to take advantage of the extra mortgage relief that's available for the next 11 months need to get in training. Like marathon runners they need to prepare months in advance and indeed in some cases almost a year in advance if they wish to convince a bank to give them a mortgage.
On the plus side they may have a slightly better chance of getting a mortgage this year as recently the two big Irish banks signalled plans to provide more mortgages to home buyers in 2012. The banks have also signalled that they are more likely to lend to those buying houses rather than flats and those buying homes rather than investors.
In 2011 as many as 13,000 mortgages are estimated to have been approved, of which first time buyers got about 6,500 mortgages and those moving houses got practically all of the remainder.
This year, with prices down by between 10 and 19pc over the last 12 months, there could be a further 1,300 mortgages available. If the banks devote more of their funds to mortgages, that figure could rise closer to 15,000 mortgages given out before the mortgage tax relief deadline closes next December.
But the prospect of increased availability is no reason for buyers to relax on their lifestyle training. According to mortgage advisor Michael Dowling, banks now scrutinise the spending and savings records of applicants for months prior to their application.
He has come across people who were refused mortgages even though they were borrowing less than 92pc of the value of the house and had their deposit saved up. However when the bank went over their credit card records they found that the applicant had missed a couple of payments over the previous 12 months. So the home hunter was refused the mortgage because the bank manager had a doubt over the applicant's ability to keep up the repayments.
So if you splashed out over the Christmas and haven't paid off the credit card bills then make sure that you do so as soon as possible. Any house hunter who is delaying payment with a view to splashing out again on Valentine's Day should think again. Not only do banks look at the bad credit record, but they can also scrutinise how mortgage applicants spend their money. A bit like Angela Merkel and her gang of three, the Irish banks also want to know that they are lending their money to someone who is willing to undergo a bit of sacrifice in order to make sure they can save money to repay the bank. In effect it's not even enough to keep out of the red but a buyer must be substantially in the black.
Gone too are the days when children who got a present of a house deposit from their parents could soft soap a bank manager into agreeing a mortgage of more than 92pc of the value of the house. Children must also show they have a record of saving consistently each month.
Banks may treat kindly those applicants who are paying rents on time and thus showing both the ability and the discipline to keep up the monthly repayments. So parents who are sheltering their kids from the perils of the rental market need to think again. Such parents are not doing them any favours if this means that the kids are spending a substantial portion of the their earnings on holidays and fast cars. So for some, spending on rent may not altogether be dead money after all if it teaches the kids the discipline of keeping up their monthly mortgage payments and other household outgoings. So parents may be doing them a double favour by charging them rent and putting it in a deposit account.
House hunters who are offered a new job with extra cash should also be wary of taking up the offer if they also want to buy a house this year. Dowling cites a person who was head hunted for a new job but found that the bank refused him a mortgage because he had been in the job only six months at the time of the application.
So if you are planning to buy before next December's tax deadline be sure to get those ducks in a row as soon as possible and visit a mortgage advisor to see what other bruises in your financial track record need a bit of toning.