Your Money: Find the right mortgage for you
There are plenty of incentives for first-time buyers but beware the gimmicks
A relaxation of rules sees some credit unions start mortgage lending from January.
Credit unions enjoy a very high customer satisfaction rating but, up to now, have only sold personal loans. This is because the complex way they are set up means they are limited to lending 10pc of assets, so they have lots of money on deposit but are limited in what they can lend.
Those with assets over €100m will now be allowed lend up to 15pc of their assets long term. What rates and terms this will be at remains to be seen.
This week we look at the much expanded mortgage market, particularly for first-time buyers who the Government seems intent on saddling with mortgages, going so far as to suggest future housing developments must set aside 30pc of properties exclusively for FTBs.
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With lower deposit requirements (10pc), the taxpayer-funded Help To Buy (H2B) scheme and exceptionally generous Rebuilding Ireland Home Loan, first-time buyers are a relatively pampered lot.
However, getting a mortgage is still challenging, never mind finding a house you can afford. I asked Joey Sheehan of MyMortgages.ie what it is like. The panel below is the checklist for a FTB embarking on their mortgage journey.
"It's absolutely in the consumer's interest for more competition, and credit unions will be abiding by the prudent lending rules," he said.
"It's got easier for first-time buyers overall as banks have broadened criteria around overtime, bonuses, shift allowances and commissions being taken into account for lending limits, if they can be proved. There's a big demand for the H2B scheme and more houses being built".
First timers can borrow up to 90pc of the house price they need (Loan To Value rate), subject to lending limits of 3.5 times income. Although banks can apply some leeway to this limit, it is more likely to be reserved for established borrowers on high incomes.
Interest rates have dropped considerably in the last year, although we are still behind Europe. A new borrower asking for the maximum loan to value can see a range between 2.5pc and 4pc. On a loan of €360,000 for a house costing €400,000 this would see repayments of around €1,290 a month at the lower end. Life insurance and home insurance are must-have add-ons.
Many banks hook in customers by offering incentives. Some are straight cash deals (PTSB offers 2pc cashback, while Bank of Ireland and EBS add another 1pc to this after five years), while AIB gives you free current account banking, KBC and AIB discounted home insurance and Ulster Bank €1,500 toward legal fees.
KBC offers a lower rate if you are also a current account holder (2.5pc vs 2.7pc on a fixed rate, for example).
It's important to realise none of these on their own should be a reason to buy a mortgage. Such gimmicks are immediate, while a mortgage can last three decades. It should be priced out over a couple of years to make sure you are not, in fact, paying for the incentive through higher mortgage interest rates.
Using a mortgage broker can cut through the minefield.
To fix or not to fix
Around 70pc of all new mortgages are fixed rates. People like the certainty of a known repayment in uncertain times, but fixing for too long means if rates go down you're stuck paying more.
KBC's 2.5pc may be the cheapest, but EBS and Bank of Ireland offer 2.9pc (one year in the latter case).
You can get a good comparison on ccpc.ie or bonkers.ie.