Thursday 19 September 2019

Sinead Ryan's financial tips for getting on the ladder

For those who can take the plunge, where and how should they do it?
For those who can take the plunge, where and how should they do it?

This year has seen possibly the biggest changes to the mortgage market in recent times. State-owned banks are now, for the most part, back on an even keel. Some are even in profit, and better yet (for them), they won't be paying any tax on those profits for a couple of decades.

Selling what's left (a bit of Bank of Ireland, two thirds of AIB and EBS and all of Permanent TSB) remains a priority for Government, and keeping banks buoyant is the best way to attract investors.

Add to that the continuing interest-rate doldrums the European Central Bank finds itself in, it creates a buyers' market for mortgages.

But with stagnant supply still the key problem facing potential buyers, is there any point in getting mortgage approval if you can't find somewhere to live?

"Daft" schemes such as the Government's much lauded 'Help To Buy' initiative haven't helped at all, according to Savill's Director of Research, Dr John McCartney. "It's an abomination," he says, not mincing his words. "I haven't met any economist who thinks it wasn't inflationary and hasn't driven up house prices. Eurostat figures bear out the sharp increase in the price of new houses shortly after its introduction - the benefit gets inflated away. In fact it only helps marginal developers with moderate supply in housing estates which weren't profitable to build."

Among consumers, it was most eagerly embraced by those self-building in rural areas. The limits of it ruled out many inside the M50, thus solving a problem that didn't exist.

Is he more encouraged by the Central Bank's initiatives on Loan to Value and Loan to Income limits?

"I'm always sceptical of the ability of macro prudential rules in keeping a lid on house price inflation. Data from Q4 2017 right through to Q2 2018 shows that 49-54pc of all house sales are still cash buyers and it doesn't resolve this.

"It may prevent more people becoming owner occupiers, but the problem with that is they don't just evaporate; they still need to live somewhere and they stay longer in the private rented sector. Investors then get better yield, it feeds back into the buy-to-let market and you're in a circular problem."

McCartney has put forward this argument since 2014, and is somewhat despairing of governmental market meddling, which he claims may solve short-term issues, before being followed "by more of the same".

But for those who can take the plunge, where and how should they do it? And how do you avoid getting mired in the paperwork?

To fix or not to fix

Despite a price war breaking out among lenders of late, average interest rates here remain stubbornly high at 3.13pc compared to an attractive 1.78pc in the rest of Europe. That's because we're continuing to subsidise loss-making trackers (and scandal-hit redress schemes) and the over-arching arrears books that banks are deathly slow in handling.

With the ECB's expansive quantitative-easing programme coming to an end, Mario Draghi has signalled that rate rises are on the way. It's not expected before autumn 2019, and will be more of a nudge than a hike, but Dr McCartney reckons locking down rates now may not be a bad thing for borrowers. "There are plenty of attractive fixed rates out there and while the ECB has been pretty transparent about its intentions, there'll be nothing unexpected."

Banks are eager to retain customers who might be enticed to switch, although in reality fewer than 1pc do, but new borrowers can find a three-year fix with KBC at just 2.6pc or Ulster at 2.85pc. Bank of Ireland will give 3pc over five years along with 3pc cash back over the term.

Getting financially fit

Joey Sheahan is Head of Credit at MyMortgages.ie. Getting yourself mortgage-ready needs to start about six months out, he says. "Banks are lending, without a doubt. But they are also applying rigorous credit assessments and approval processes before saying yes to any mortgage applicant. You might only get one bite at the cherry with a lender, so it's crucial you put your best foot forward.

Before they will give any consideration to a mortgage application, a bank will first look at an applicant's credit history and recent banking history. Ultimately, what they are looking for is a capacity to repay any loan and a propensity to do so, evidenced by past behaviour. There are a number of red flags that will put a lender off."

These include, but are not limited to, issues as simple as an overdraft, whether it's authorised or otherwise, having a gambling app on your phone (irrespective of your luck) or even using your credit card to take cash out of an ATM when you're on holidays.

Banks like regularity and consistency, adds Sheahan, so documentation backing up rent payments, savings and spending are crucial to smooth the path toward a mortgage.

Poor credit ratings can seriously affect your borrowing chances. Although the Irish Credit Bureau, funded by banks, used to retain pooled information on borrowers, this burden has shifted directly to the Central Bank. The new Credit Register, operational since March this year, collects data on all loans or credit agreements in excess of €500, from hundreds of institutions. It is incumbent on lenders to cross reference it, so a missed payment on a credit union loan, or business credit which went awry years ago, will all now be checked against mortgage applicants.

Sunday Independent

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