12 things you need to know about getting on the first rung of the property ladder
2017 is the year of the first-time buyer. Banks are lending, Government policies are egging them on and even the Central Bank is smiling benignly. If you're considering taking to the property ladder, here is finance expert Sinead Ryan's advice about how to get on to the first rung
Top advice on how to get on to the first rung of the housing ladder.
1 Help-to-buy (H2B)
The H2B scheme, announced in last October's Budget with much aplomb by Finance Minister Michael Noonan, thrilled wannabe home owners who saw their dream become a viable prospect.
First-time buyers seeking a newly built home get a 5pc tax refund for monies paid over the previous four years of 5pc up to €20,000 (depending on how much tax and DIRT you paid over that time) of the purchase price. The purchase/self-build must be made between July 19, 2017, and December 31, 2019 (although there are provisions for some who had already started to draw down funds by December 31, 2016). Investors and those buying second-hand homes are omitted and the buyer must stay put for at least five years.
Register with Revenue and complete either Form 12 (PAYE) or Form 11 (self-employed) for each of the four years prior to making a claim. You'll need the signed contract, deposit balance, property details, mortgage details and legals in place and confirmation from Revenue to show to the seller/auctioneer.
To date, just 17 developers have registered for the scheme (they must sign it off), but they do include biggies such as Winsac, Ballymore and Durkan. Others should follow shortly.
2 Lending limits
No sooner was H2B out of the traps than the Central Bank scuppered the need for it by uncapping the lending limits for first-time buyers. Both Noonan and Governor Philip Lane claim they speak to each other regularly but all evidence was to the contrary on this one.
First-time buyers are in the enviable position of needing a deposit of just 10pc for any house purchase, leaving trader-uppers gnashing their teeth. Up to now the limit was €220,000, making it virtually impossible for Dubliners to buy a home. Loan-to-income limits (arguably a more important measurement anyway) remain at 3.5 times salary. Lane said he will rein in the whole thing if he believes the market is overheating.
Interest rates for savers are abysmal. Bank of Ireland has just reduced its rates to an unprecedented 0pc. For anyone trying to save in the traditional way for a deposit, it sucks. However, if you do make any money, first-time buyers can avail of the DIRT refund for savings held between 2014 and the end of 2017. There's a limit of 20pc of the purchase price, but few are in danger of hitting it. DIRT tax is one of the highest-taxed assets around (39pc in 2017), so it is definitely worth claiming if you meet the criteria.
4 Alternative lenders
The six big banks (three of which are fully State owned, one partly, and two foreign owned), have, up to now, controlled virtually all mortgage lending. But new lenders are emerging as a battered and bruised market begins to settle. Australia's Pepper has been here for a while and is open for mortgages. While it will take first-time buyers, it is geographically picky, lending only for properties in cities and Dublin commuter counties. It promises approval in principle in 24 hours and is happy to consider non-standard applicants - generally self-employed, or those with previous credit problems. Interest rates are competitive at 3.1pc - 4.01pc. Its website (peppermoney.ie) has a borrowing calculator and list of brokers.
The Frank Mortgage (thefrankmortgage.ie) is awaiting its licence from the Central Bank but promises to offer competitive mortgage products. Set up by a former Danske executive, it might shake things up a bit.
Finally, the good old Credit Union is finally mortgage-ready. With hundreds of millions of unlent money in its coffers, it's a great shame this resource hasn't been tapped before. Many local offices lack mortgage expertise and are restricted to lending a maximum of 10pc of their loan book for loans longer than 10 years. However, 38 credit unions under the Cuda umbrella have set up practice as the Solution Centre and are open for business. The application process is identical to that of banks, rates are set by individual credit unions on variable rates, and you simply need to be a customer (solutioncentre.ie).
5 Approval to drawdown
Getting mortgage approval in principle is as easy as buying a sliced pan. Well, almost. Banks report these figures, so they have to look rosy. And while banks can, correctly, say that approvals and drawdowns are up significantly - 29,498 mortgages were claimed last year according to the latest figures, representing €5.66bn by volume, with the bulk of it going to FTBs - the gap between approval and drawdown remains a chasm. By Q3 2016, approvals were up 23pc, but actual drawdown of funds by just 13.7pc.Around 20pc of applications go by the wayside even after everything's agreed. The reasons are myriad. Applicants apply to several banks, they get outbid by a cash buyer or the bank finds something on closer examination it doesn't really like about you after all. A broker will tell you the real story, and guide you to lenders who actually want to part with their funds.
6 Cleaning up your finances
Presenting clean finances with your mortgage application is vital, so prepare now. If you pay rent in cash, stop. Lenders want to see consistent payments recorded. Set up a direct debit instead. If you're borrowing the deposit, make it clear why, and from whom. They still want to see evidence of saving and proof you can meet loan repayments. Engage with your employer/accountant for all the paperwork; it's not the time to be shy. Set up your life insurance (see below), house insurance and legals in good time.
7 Bursting loan books
Banks only make money in two ways: charging you to mind it, and lending it out. First-time buyers are a good prospect and many want you enough to offer kickback gimmicks for your business. Approach these with a wary eye and only after you calculate the lifetime saving, not just today's. Bank of Ireland, EBS and KBC offer 2pc cashback, for instance. In Bank of Ireland's case, it'll even throw in another 1pc in five years. Its normal interest rates, however, are among the highest in the market. Today's gain may be tomorrow's loss. Other banks offer discounted home insurance, legal fees or free current accounts. Fine, but do your homework first.
8 To Fix or not to Fix
When banks start offering fixed rates, it is not out of altruism. It generally means they know something you don't, and usually before you. Normally fixed rates build in a "bump" in case things get rocky in the next few years (for the bank!). But rates are so low, and the EU has signalled they will remain so, that fixed are now, in many cases, lower than standard variable rates (SVR). For example, for a first-time buyer borrowing 85pc loan to value, the SVR is 4.5pc; fix it for three years and it's just 3.45pc. KBC's three-year fixed is 3.65pc, while its SVR is 3.7pc for the same money.
One of the necessary evils of mortgages is that you must buy mortgage protection insurance. Often, the bank will offer to sell you this in a handy, bundled package. Most of the time, it's cheaper to get independently. A survey by Clear Financial, based in Rathcoole, Co Dublin, showed that 46pc of people had bought mortgage protection from the bank with which they had their mortgage; 41pc said they did so to appease the bank. Asking a broker to quote you separately is good advice; banks are not allowed to engage in conditional lending and are obliged to accept the policy you have.
All the foregoing is fine and dandy if only there were houses to buy. Supply is going to remain a huge issue in 2017. Former IPAV president Eamon O'Flaherty has blamed a "huge infrastructure deficit" leading to planning refusals. He said: "Roads, sewerage, water have all been neglected. There's pent-up demand for first-time buyers and the economy is improving, but builders aren't building for them. We're inundated with demand around the €300,000 mark but they can't profit at that price." He added that VAT needed to be addressed, and said: "So much of the price of a new house goes back to Government. It's defeatist."