Mortgage applicants must submit to exhaustive financial stress tests
Doctor faced months of queries in a bid to move up property ladder
IT should have been an open-and-shut mortgage application for a well-off, single doctor with no major personal debt looking to trade up from a city-centre apartment to a three-bed semi in a middle-class enclave in Dublin.
Or so he thought.
In fact, it took more than two months of tortuous form-filling and an exhaustive trawl through past business and personal financial records before the application was even considered and then, finally, granted.
Here, according to documents seen by the Sunday Independent, is what the bank sought before it would even consider a mortgage application from the man:
- Salary certificate and the last three payslips from a part-time (one-day-a-week) PAYE employment with a State agency.
- Copy of the last three years' audited accounts from the applicant's main private medical practice.
- Tax details via Revenue's Notice of Assessment for 2011 and 2013.
- Copy of the last 12 months of both personal and business current account statements.
- Copy of last 12 months' savings account statements.
- Copy of existing mortgage statements for 2013 in their entirety.
- Copy of the applicant's last three credit card statements.
- Copy of passport.
According to Karl Deeter of Irish Mortgage Brokers, it is often the self-employed business people, even those who are relatively comfortable, who have to jump through most hoops when it comes to securing a mortgage.
"If it is a couple in the PAYE sector, the banks don't need to go into so much detail. They will look for salary details, savings records and an account of existing debts. When it comes to people like a doctor or another professional business person, their finances are much more complex and so the financial institutions need to trawl deeper," Deeter told the Sunday Independent.
But at the other end of the spectrum, just how hard is it for a first-time buyer on a relatively modest income to get a home loan for the first time?
And will the Government's much-vaunted plan to make it easier for the young to buy their own homes actually work?
Not necessarily, according to mortgage expert Liam Croke of Harmonics Financial. He said the new plans announced by Finance Minister Michael Noonan last week will have little impact on the onerous financial stress tests that all the main lenders now operate when dealing with mortgage applications.
In brief terms, those stress tests are based on just how much money will be left in your account at the end of the month after you have met a mortgage repayment.
So a single person on less than €60,000 a year must have at least €1,400 left in their bank account each month after they have paid their home loan.
In the case of a couple making a joint application with just one earning at a rate of €60,000 a year, there should be €2,000 left in the account, the banks insist.
If you don't meet that target, no mortgage.
"It is still difficult to get a loan. In the case of a couple with both working and earning a combined €60,000 to €70,000, the banks will examine the figures and want to see at least €2,500 left in the account after the mortgage has been paid. And they will require another €200 left in the account for each child. If they have two children, it means the same couple earning up to €70k have to have €2,900 in their account after the home loan payment has been met," he said.
Mr Croke does not believe that the Government's plan which will allow first-time buyers to buy their houses with smaller deposits by giving out mortgages worth up to 95 per cent of the value of the home will make it any easier for those who are trying to buy their own home.
"That measure in relation to the size of the deposit required will not change the banks' view in relation to the stress tests. They will still continue. Banks are putting the bar high and it could be argued that that is a good thing.
"I don't see it ever getting easy to get a mortgage. The days when there was a crude calculation of giving a mortgage based on, say, six times annual income, are long gone," he added.
Karl Deeter believes it is now slightly less difficult to get a mortgage than, say, a year ago, and figures for mortgage draw-downs in the first quarter of this year reflect that reality.
But he said that banks were being careful and much more painstaking in looking at the long-term financial viability of mortgage clients.
Deeter has a jaundiced view of the Government's plans to make it easier for first-time buyers to get a mortgage.
And he questions the minister's claim that his new measures were required because banks are currently just offering mortgages on a loan-to-value ratio of 80 per cent which requires purchasers to have 20 per cent on deposit in order to secure a loan.
Deeter said that if an applicant's overall financial situation is sound, banks will currently offer loans based on a deposit of between 8 and 10 per cent.
"The minister was being economical with the truth. He was using the example of one particular lender who will only offer a mortgage on a loan-to-value ratio of 80 per cent on rural apartments.
"That conservatism is based on the bank's view of the value of that property if the mortgage fails and they have to repossess. Most banks will generally look for a 10 per cent deposit," he said.
He is convinced that the better approach would have been to simply lower the price of new houses by cutting out unnecessary red tape, removing upfront contributions and lowering VAT rates.
"About 40 per cent of the price of a new property goes to local or central government in the form of taxes. Affordability is the issue. Why doesn't the Government simply make new houses cheaper to buy?" he asked.