John Ahearne offers first-time buyers advice on managing their credit history to boost their chances of entering the property market.
With property rents probing historic highs almost everywhere in the country, the choice between renting and buying has rarely been as clear-cut. Increasing competition in the mortgage market, together with low interest rates across the board has pushed monthly repayments below monthly rents across a variety of locations and house types.
Recent research from Infor Lab puts those figures into stark relief. In Cork, the monthly mortgage repayment for a three-bed house comes in as low as €720, whereas rent on the same property would be approximately €880.
In Galway, a mortgage repayment for the same three-bed house would cost €606 a month, while rents come in at approximately €738. In Dublin, the figures vary widely depending on location. In Dublin 10 for example, a mortgage would cost €1,299 while rent average €1,777.
Joey Sheahan is head of credit with MyMortgages.ie. He says “Rents are at an all time high in the country and people are paying through the nose for properties that often do not meet all their requirements. And while the mortgage market too has its own challenges, when we break down the costs for people, they are often pleasantly surprised to learn that the cost of mortgage they are looking for is significantly lower than the rent they are currently paying.”
Just because mortgages are more affordable does not, of course, mean that they are easily had. Earlier this month, the Central Bank reaffirmed the rules governing mortgage applications. First time buyers may borrow no more than 90% of the value of the house, subject to the loan to income cap of 3.5 times gross annual income.
Given current house prices – particularly in Dublin – these lending rules put home ownership beyond the reach of huge numbers of wage earners.
This is where the exemptions come in. Banks are allowed to lend more than the 90% of house value, and in excess of the 3.5 times income cap in a small number of cases. Last year, it widely reported that the banks allocated all of this exceptional lending in the first quarter of the year.
With that in mind, banks and brokers are now urging would-be first-time buyers to get their affairs in order by year end, in order to give themselves the best possible chance of securing finance under these more lenient terms.
So while November and December usually see a showdown in the number of mortgages written, these, in fact, are the months when you see a lot of behind-the-scenes activity as mortgage seekers begin the necessary preparations for securing house finance.
Joey Sheahan again said: “The latest Banking and Payments Federation Ireland mortgage figures reveal that mortgages are increasing in terms of volume and value and that first time buyers remain the single largest segment by volume (48.3%) and by value (48.7%).”
He points out that these first time buyers are now confronted by two choices – either to comply with the Central Bank’s general lending rules or else to aim to be included as part of the banks exemptions.
While not all banks are entirely closed to exemptions, and some are still reviewing applications on a case-by-case basis, most have reached their exemption quota. However, applicants will not have long to wait until exemptions open again in January.
“Given the limits on lending and the lack of supply in many areas, it’s a very competitive market, and we are trying to get ahead and make sure they are doing all they can to increase their chances of approval.”
He goes on: “Applying for a mortgage is a big undertaking – and one which needs to start months before the application forms are even looked at. You might only get one bite at the cherry with a tender, so it’s crucial you put your best foot forward.”
Before they will consider a mortgage application, a bank will first look at the applicant’s credit history and recent banking history. Ultimately, what they are looking for is a capacity to repay any loan tendered and a propensity to do so, as evidenced by past behaviour.
There are several red flags here that you need to be aware of.
Number one is an overdraft, whether it’s authorised or not. Nor do banks like to see evidence of online gambling in your bank or credit card statement. Cash advances on credit cards are similarly frowned upon.
If you’re saving for a house and currently pay for your rent in cash, it’s very important to switch to direct debit or some electronic means as soon as possible so that you can establish a clear paper trail. Banks do not like non-documentation of regular payments such as rent. Erratic spending patterns, irregular saving patterns and poor credit ratings are also big no-nos.
Joey Sheahan says that even if you have an overdraft, don’t use it on a regular basis. “With a credit card, ensure balances are cleared each month. Not only will this portray a better picture of the applicant, it will save interest, with some credit card companies charging up to 18%.”
Make sure all loan payments are up to date. Any missed or late payments will not endear you to a potential lender.
It’s a good idea to keep all your savings in the one account and to make sure you’re making regular payments into it. Avoid all withdrawals from this account.
Being in permanent employment is, of course, a significant advantage for any would-be mortgage holder, thought the banks do say that they review all applicants on a case-by-case basis.
If you’re self-employed then you must ensure that you have all your accounts fully up to date and that you have all relevant returns filed with Revenue.
Contract workers should include a copy of their CV as well as their last three P60’s. Overseas buyers will need to request a copy of their credit history for the country in which they currently reside.
As they begin to pull the necessary documentation together, don’t forget the Help to Buy Scheme Incentive, which was established by the government early last year to help first-time buyers to save enough money to afford the deposit.
Under the scheme, first time buyers can claim a tax rebate of up to €20,000 for the purchase of a new build for a self-build house or apartment.
The maximum tax refund is the lower of either 5% of the value of the property or €20,000. In addition, the house cannot be valued at more than €500,00.
Check the Revenue.ie website for more details.
First-Time Buyer Checklist:
You will need the following to ensure your application is complete.
- Photo Identification
- P60 for last year
- Pay Slips – six most recent
- Certificate of Income – to be completed and stamped by employer
- Current Account Statements – for the last 6 months
- Saving Account Statements – for the last 6 months
- Credit Card Statements – for the last 6 months
- Loan / Mortgage Statements – for the last 12 months.
Source: Irish Examiner 4 Jan 2018
MyMortgages Limited trading as MyMortgages.ie is regulated by the Central Bank of Ireland.