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Get ready for big hurdles when chasing a mortgage


Illustration by Tom Halliday

Illustration by Tom Halliday

Illustration by Tom Halliday

It's about 11 years since I took out my first mortgage.

At the time, banks were throwing money at people. It was my salary - rather than the money left over after bills and other financial commitments had been met - which the bank took into account when offering me a mortgage. My lender went out of its way to find things which would have helped me to borrow that bit more. It even offered me more than I needed to buy the home I was after.

It's a different ball game today. My husband and I bought our current home not so long ago. I breezed into my local bank to apply for a mortgage around that time, expecting the same attitude. Not so. I felt like I was in an interrogation room. The bank pored through every detail of our financial affairs. I was even asked if we would be able to afford the petrol bills that we would run up on our commute to our new home. In the end, we got €10,000 less than we had asked the bank for.

For the first time in three years, cash buyers are losing out to borrowers when buying a home - there are more people buying homes with mortgages than with cash. The number of mortgages being dished out by the banks has also increased over the last year.

Although that's encouraging, getting a mortgage is no walk in the park. Be prepared for some serious nitpicking from your bank if applying for one - as well as other stumbling blocks.

The deposit

Unless you have tens of thousands at hand to pay for a deposit on a house, you won't have much chance of getting a mortgage. Banks will typically lend between 90pc and 92pc of the value of a home, which means you must usually have a deposit equivalent to about a tenth of the price of the property. However, the deposit you need could be a lot higher than this, depending on the property you are buying, the amount you are borrowing, and the lender.

AIB and EBS Building Society for example will only lend up to 75pc of the value of a one-bed apartment. So if you're buying a one-bed for €200,000, you would need a deposit of €40,000.

A first-time buyer borrowing more than €400,000 from AIB or EBS would need a deposit equivalent to 15pc of the purchase price of the home. So if you were borrowing €500,000 from AIB, you would need €75,000 at hand.

Your age

The property downturn of the last few years prevented many people from moving home. Hundreds of thousands of homeowners were trapped in negative equity. Similarly, most of those who snapped up cheap tracker mortgages stayed put once banks stopped offering those mortgages in 2008 - rather than risk losing their tracker mortgage.

Many of those who are trading up today are therefore a bit older than they expected to be when buying their second home. This can work against you, particularly if you are in your 40s or 50s.

Most lenders allow you to repay a mortgage over 35 years - as long as you have not hit retirement age before then. Retirement age can be anything from 66 to 70, depending on your bank and your profession. Self-employed individuals will usually have until the age of 70 to clear a mortgage; employees on the other hand typically have until the age of 68 to do so.

The longer you have to repay a mortgage, the more affordable your monthly repayments are - and so the greater your chances of getting a larger mortgage. The shorter the mortgage term, the higher and less affordable the monthly repayments are. As a bank must be assured that you can afford the repayments on your mortgage, you may not be able to get the mortgage you need to secure your dream home if you have 20 years or less to go until you retire.

The expense

Today's mortgage borrowers are getting a raw deal when compared to those who took out mortgages before 2008. Had you managed to grab a cheap tracker mortgage back then, the interest rate on your mortgage today could be 1pc or less.

First-time buyers today however can expect to pay mortgage interest of between 4.5pc and 4.7pc when borrowing up to 90pc of the value of their home. Permanent TSB has the most expensive standard variable rate, at 4.7pc, while Ulster Bank has the cheapest, at 4.5pc. Borrow €300,000 over 30 years at an interest rate of 4.7pc and your monthly mortgage repayments work out at about €1,538. Those repayments would be only €964 under a cheap tracker rate of 1pc.

The maths

A large salary is no guarantee that you will get the mortgage you are hoping for. Banks are more interested in your disposable income - that is, the amount of money you have left over each month after meeting the cost of large financial commitments, such as creche fees, child maintenance payments, and loan repayments.

With Permanent TSB for example, you must have a disposable income of at least €1,350 a month (after clearing any existing loan repayments as well as the repayments on the mortgage you are seeking) if applying for a mortgage on your own. Joint applicants must have a disposable income of at least €2,000 a month. "A higher requirement may apply for higher earning applicants," said a spokeswoman for Permanent TSB.

KBC is unlikely to offer you a mortgage if the repayments on that loan eat up more than half of your disposable income.

Bank of Ireland generally offers up to 4.75 times a first-time buyer's salary. Those trading up will get slightly less - a single applicant can borrow up to 4.25 times their salary while a couple can borrow up to 4.5 times their earnings. "This will vary according to individual circumstances," said a spokeswoman for the bank. "It is very important that applicants can afford to take on a mortgage and still have enough disposable income to enjoy their new home."

Remember, any large loans, credit card bills or overdrafts will work against you when applying for a mortgage - as will any history of falling behind on loan repayments.

The carrots

Lenders often offer perks, such as a free home insurance or valuations, to entice you to take out a mortgage with them. Remember these perks are typically only worth a few hundred euro. Choose an expensive lender and you could pay tens of thousands more in interest than had you gone with a cheaper one which offered no perks.

The interest on your mortgage will add up to hundreds of thousands of euro over your lifetime - so don't let carrots trip you up.

You can borrow almost five times your salary

The days of getting mortgages of seven times your income may well be gone - but we're not that far off.

You can get a mortgage that is almost five times your salary today.

The Sunday Independent asked banks the most they would lend to an individual earning €35,000, and a couple earning €100,000, assuming the applicants had no children, no other debts and an ability to repay the loan.

Bank of Ireland lent most to the single person earning €35,000. Bank of Ireland said it would offer up to €157,500 to a first-time buyer on that salary, and up to €140,000 to a trader-upper on the same income.

Permo said it would lend up to €154,305 to a first-time buyer and trader-upper earning €35,000 - as long as no more than 80pc of the value of the home was being borrowed.

KBC Bank said it would generally offer up to €108,914 to a first-time buyer earning €35,000, assuming he is 30-years-old, employed in the private sector, and buying a semi-detached home in Dublin.

KBC was the most generous lender for a couple earning €100,000 between them, according to our survey.

KBC said it would offer up to €482,609 to a first-time buyer couple on that income, assuming both are aged 30, working in the private sector, and buying a semi-detached house in Dublin. That's almost five times the couple's income.

Bank of Ireland said it would offer up to €475,000 to a first-time buyer couple earning €100,000 between them - as long as both were working. A couple trading up who are on a similar salary would be able to borrow up to €450,000 from the bank.

Permanent TSB said it would offer up to €463,892 to a married couple earning €100,000 - as long as both were working and no more than 80pc of the value of the home was being borrowed.

AIB and Ulster Bank declined to say the maximum mortgages they would be prepared to offer.

Sunday Indo Business