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Dan White: Shop around if your home loan lender lets you down

Dan answers your financial questions

I AM a first-time buyer. The EBS approved me for a mortgage of €250,000 in December 2009. Since then, I have been looking for a suitable property. I have now found one and made an offer but when I contacted EBS to initiate loan drawdown, I was informed that they had changed their lending guidelines on June 10 and will now only advance €230,000.

It seems to me that the EBS made me the offer to satisfy the Government that it was still lending money but then withdrew it by changing guidelines. Is this permissible?

Meanwhile, my financial position has improved since my initial application and the bank are aware of this but, as I am €20,000 short, I must cancel my offer. Is this fair?

Jennifer

If Jennifer examines her paperwork from the EBS closely, she will almost certainly find that what she received last December was mortgage approval "in principle" rather than a firm offer of finance.

During the property boom there was in practice no distinction between approval in principle and a firm offer.

There is now. With all of the banks strapped for cash and, their promises to the Government notwithstanding, looking for every opportunity to cut back on their lending, an offer of mortgage approval "in principle" isn't worth the paper it's written on.

In the brave new hard-edged world of banking the only thing that now matters is a firm offer of finance issued by the bank when the buyer has submitted a loan application for a specific property.

So the bad news for Jennifer is that, if she wants to stick with the EBS, she doesn't have any choice but to accept its reduced loan approval.

However, she is not without options. Firstly, with property prices still in free-fall she could, if she wished, play hard-ball and submit a reduced offer.

While the seller won't like it, cash buyers like Jennifer are fairly thin on the ground these days. Unless there is another buyer who desperately wants the property my guess is that, after a suitable period of huffing and puffing, the seller would accept her reduced offer.

Even if the seller does accept a reduced offer, there is one other thing Jennifer should consider doing.

As someone with a well-paid secure job she is not tied to the EBS.

If I were Jennifer, I would look around and check what's on offer from the other lenders before I signed on the dotted line.

I have some money on deposit which is earning virtually nothing in interest. Recently a friend of mine suggested that I put some of the money into prize bonds. Is this a good idea?

George

If you have a few bob to spare it is a good idea to put a small part of it into prize bonds.

Prize bonds are Government bonds, however instead of paying interest, every prize bond goes into a weekly draw for prizes.

The top weekly prize is €20,000. There is also a monthly draw with a top prize of €1m. All prize bond prizes are exempt from DIRT and other taxes.

This year the Prize Bond Company, which operates the prize bond scheme on behalf of the Government, expects to pay out €30m in prizes, equivalent to an interest rate of about 3pc.

The minimum purchase of prize bonds is four units, which will cost you €25. They are available either from your local post office or online. If you ever decide to cash in your prize bonds you will get all of your money back.


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