I was left a house by my godmother who died last Christmas. She was my mother’s best friend, but we weren’t related by blood. My mother was very ill during my childhood and she took me in for a few years. She never married or had children herself and, in turn, I cared for her in her final years. I didn’t ask for the house, or put her under any duress for it. I say this only to stress the close relationship we had. I now discover to my horror that I am expected to pay an enormous tax bill on the house, far more than if I was her daughter or niece. Can this be fair?
Fair or not, you are caught by the rules surrounding inheritance taxes which place a far higher monetary value on blood relationships than friendships.
The maximum tax free amount that you can generally receive from a disponer (the person who died) who is not a linear relative is €16,250, under Group C thresholds relating to Capital Acquisitions Tax (CAT), with the remainder taxed at 33pc. This includes any other gifts received during their lifetime.
It’s a common issue, but not to be glib about it, you have a wonderful bequest left to you which I’m sure is welcome.
You don’t say how much the property is worth, but you will be required to have it valued at market rates and calculate the tax accordingly.
This may unfortunately involve selling it in order to meet the bill, although it may well be possible to get a mortgage on it, which would be less than you would have to borrow to buy it outright. I don’t know your age or circumstances, but a bank would certainly be open to that sort of arrangement.
I don’t know about your current living arrangements, but this bill may have a possible mitigation.
You say you were your godmother’s carer. If you lived with her as such, you may be able to claim Dwelling House Relief against the tax due. The conditions are strict, however, so I don’t want to get your hopes up:
The house must have been your only or main home for the three years before the date of the inheritance, and you must not own or have an interest in any other house.
The exemption will be withdrawn, even at a later date, if you sell the house and don’t replace it with another principal dwelling, or cease to occupy it, within six years.
If you believe you could be exempt from it would be worth getting in touch with a solicitor or tax advisor to make sure the requirements are all met and they can go about settling the paperwork involved.
Q I am married and my spouse and I are both healthcare workers, with three children aged 16, 13 and 10. My husband is 64, I’m 44.
We’ve been to few banks and inquired about applying for mortgage, but were only offered a very small amount and for a short term due to my husband’s age. We’ve been renting and paying nearly €2,000 a month for a three-bedroom house excluding bills. We are getting worried that the rent may increase again.
Do you know if there’s any other option for us or any recommendations that you can share?
Banks generally don’t like borrowers who are nearing retirement age and tend only to permit mortgages (or indeed loans of any kind) to 65, or 70 at a push with Bank of Ireland. The credit union may well offer you a loan and be a little more flexible. It’s certainly worth a meeting; many of the larger ones are now offering mortgages, but honestly, I think it’s probably a long shot.
I asked Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach to look at your query and she said: “Some banks will allow a married person to apply on their own despite being married. The benefit of this is that you can avail of the longer term mortgage, to the age of 70.
“So, in your case, this would be a 26-year term mortgage. The downside is that you can only use your own salary and borrow 3.5 times that amount. If you are a civil servant, then you potentially can move two points up on the pay scale and borrow 3.5 the increased salary amount.
“Sole applicants can also benefit where a spouse has an adverse credit rating or is not a first time buyer”.
The best of luck with mortgage hunting. A call to a mortgage broker may help ease your path.
‘May has proven to be yet another very strong month for mortgage approvals activity, especially for first-time buyers.’
The severe pressure on Ireland’s housing market is showing no signs of easing, with mortgage approvals over the past 12 months surging to just under €12bn.
The latest figures from the banking industry show more mortgages were approved in the last year to homebuyers and builders than in any 12-month period since they first began recording figures in 2011.
According to the Banking & Payments Federation Ireland (BPFI), the number of new mortgages approved by banks in May jumped 7.4% compared to April. Of the €1.2bn in new mortgages approved last month, first-time buyers accounted for €643m, or 55.4%.
The new figures come as a range of reports were published this week confirming that the shortage of supply of appropriate homes is resulting in significant house price increases.
A report from property website MyHome.ie in association with Davy shows prices rising by 6.7% across the country over the past three months. Homes outside Dublin have seen the largest price increase, up more than 7% for the second quarter, and up 13.6% compared to 2020.
Speaking on the latest mortgage figures BPFI chief executive Brian Hayes said that May has proven to be yet another very strong month for mortgage approvals activity, especially for first-time buyers.
“Similar to the trend we saw emerge last month, we have seen a doubling of activity across many mortgage categories,” he said.
“It is important we view these figures in the context of how the country was operating in May 2021 compared to 12 months earlier.
While a number of Covid restrictions were lifted in May, lenders and customers had also adjusted much better to working within the restrictions and this is clearly borne out by the figures.”
In the 12 months ending May 2021, there were 48,935 mortgage approvals, valued at a total of €11.9bn. During this period, more loans were approved for home buyers/builders than in any 12-month period since the data series began in 2011 at 38,882. In value terms, approvals for home buyers or those building neared €10bn for the first time.
“These are significant figures, and very much signal a robust pipeline for drawdown activity later in the year,” Mr Hayes said.
MyHome.ie managing director Angela Keegan said it appears that the savings generated by homebuying professionals during various lockdowns have helped fuel property price inflation while also diluting the effect of the Central Bank’s mortgage lending rules.
Her comments are backed up by Joey Sheahan, head of credit at homes loan broker MyMortgages.ie.
We’re seeing much larger deposits as a result of pandemic savings, which are allowing people to look at larger properties than they might have otherwise had the financial capacity to do,” he said.
“Coupled with larger deposits, there is a desire to create home working spaces, and so we’re seeing people stretching for four and five-bed properties as a result.
“Tech workers, in particular, are favouring larger homes, which will allow for home working in the longer term.”
The latest move means mortgage offerings here are finally starting to resemble those in the likes of Spain and France
Spanish-owned mortgage provider Avant Money has upped the ante on its rivals by offering a range of new long-term fixed rates.
The provider is the first here to offer a 30-year fixed rate, in a move that has the potential to transform the mortgage market.
This means repayments will be the same every month for the life of the loan.
Its new continental-style offerings, for between 15 and 30 years, have rates as low as 2.25pc.
The suite of new long-term fixed rates from Avant Money comes weeks after non-bank lender Finance Ireland surprised the market when it launched an innovative 20-year mortgage.
Long-term fixes are a feature of mortgages on the continent, where rates from around 2pc are common.
The latest moves mean mortgage offerings here are finally starting to resemble those in the likes of Spain and France, despite the imminent departure of Ulster Bank and KBC.
Wholesale interest rates are at historic lows, with homeowners here mainly taking out fixed rates over increasingly longer period.
This means long-term fixed rates are starting to attract interest from borrowers here.
Now Avant Money has launched 15-, 20-, 25- and 30-year mortgages. The rates vary depending on the amount being borrowed relative to the value of the home, but are lower than those offered on most shorter-term home loans.
A rate of 2.85pc will apply for those borrowing over 30 years who are borrowing 60pc or less of the value of the home.
For those with a loan-to-value of 80pc the rate rises to 3.1pc. For those borrowing over 15 years, with a loan-to-value of 60pc, the new rate is 2.25pc.
Avant Money, owned by Spain’s Bankinter, shook up the market here last September when it launched offering the lowest rates. Its lowest rate is 1.95pc, considerably cheaper than its rivals.
The new products will have flexibilities built in. Avant Money will allow borrowers to overpay up to 10pc.
There will be a cap on the fees for redeeming the mortgage, and flexible options if moving home. Those moving will be able to port the existing mortgage to a new home.
Loans can be repayable up to the age of 70.
Switchers and movers are expected to be the most likely to take up the new products, but first-time buyers with big deposits may also find the certainty of a long-term fix attractive.
Head of mortgages for Avant Money Brian Lande said the new offers would allow Irish consumers the opportunity to lock into fixed rates for their full mortgage term at a time when interest rates are at a historical low.
“I’m also delighted to confirm that we will be extending these new flexible features to all of our existing and new customers across our product range,” he said.
In May, Avant Money cut a number of its rates, and launched four- and 10-year fixed rates, which are the lowest in the market.
This is in addition to having the lowest rate of 1.95pc for those whose mortgages are 60pc or less of the value of their homes.
Its aggressive pricing will be a relief to buyers and switchers as Ireland continues to have some of the most expensive mortgages in the Eurozone.
With the imminent departure of Ulster Bank and KBC, Avant Money is aiming to become the fourth largest provider of mortgages here after AIB, Bank of Ireland and Permanent TSB.
Joey Sheahan, Head of Credit and Author of The Mortgage Coach, MyMortgages.ie
“ This is great news for mortgage holders in Ireland. Not only does a 30 year fixed term offer the promise of a guaranteed level of mortgage repayments over the long term for those mortgage holders who opt for it, it also represents a step in the right direction for the Irish mortgage market. We are catching up with our European counterparts when it comes to fixed rates – and overall better value on rates.
Other lenders will now find themselves under pressure to develop and offer better mortgage products so as to remain competitive.
Mortgage holders may well be confused or unsure as to whether a long term fixed rate is the best route for them, so we are urging anyone considering their options to contact a broker who can take an overall assessment of their individual situation and advise them as to the best course of action”.
Two major mortgage lenders have already reached the limit of how many exemptions to the Central Bank’s mortgage rules they are allowed to offer in a year.
Lenders are allowed to offer more than the strict rules of 3.5 times income and allow less than 20% in a proportion of their loans over a year. It means PTSB and KBC can no longer offer borrowers the mortgage exemptions that allow for loans over the threshold.
Banks and other lenders have the freedom to lend a certain amount above these limits. In any one calendar year they can give an allowance of up to 5% of the value of mortgages to first-time buyers and up to 20% of the value of mortgages to second and subsequent buyers, and up to 10% of the value of mortgages to buy-to-let buyers.
Both lenders Permanent TSB and KBC, which recently announced it was leaving the Irish market, have used up the exemptions from the rule limiting the amount they can borrow relative to their incomes.
Many first-time buyers need an exemption to the loan-to-income rule, especially in cities where property prices are higher.
PTSB and KBC’s ending of exemptions comes as the Central Bank said it was holding ‘listening and engagement events’ next month as part of a review of the lending limits. The review will look at the effectiveness of rules and whether they have achieved their aims.
Association of Irish Mortgage Advisors chairman Trevor Grant said yesterday: ‘While this might seem like a blow to first-time buyers, we are advising people not to be disheartened; there are still a number of lenders offering exemptions, and this cycle will correct itself later in the year.
‘It does, however, highlight the importance of the mortgage application process itself and of ensuring that all the boxes are ticked when it comes to approaching a lender for approval.
‘When trying to secure a mortgage, it is imperative that applicants know exactly what lenders are looking for and how to present their particular case to them.’
Mortgage brokers have been flooded with calls from worried first-time mortgage applicants hoping to secure a home-loan.
Joey Sheahan, of MyMortgages.ie, said: ‘Our advice to all has been not to panic.
‘There are still four banks open to exemptions for first-time buyers – Haven, ICS, Finance Ireland, Ulster Bank – while PTSB has not closed off the option for second-plus-time-buyers. We are however, suggesting to those who are mortgage ready, not to delay.
The mortgage market is in a state of flux, as we have seen over the last few months with news of lenders leaving.
‘There has been good news too – most recently from Finance Ireland in relation to its longterm fixed rates.
‘All in all, there are still several banks very much open to new business, so those looking for a mortgage should continue as planned – a very many will be successful.
The maximum term of 20 years is twice as long as currently available to Irish mortgage customers.
GRAINNE MCGUINNESS
While home-buying has been making headlines for all the wrong reasons of late, there has been some positive news for potential borrowers, with a number of new rates and long-term fixed rate options announced last week.
Finance Ireland – company which first entered the residential mortgage market in 2018 – launched a range of long dated fixed rate mortgages for owner occupiers.
The maximum term of 20 years is twice as long as currently available to Irish mortgage customers. It will mean that many home buyers may be able to have a fixed rate for the full term of their mortgage.
Finance Ireland CEO Billy Kane says the long dated fixed rates will allow customers to benefit from the ’historically low interest rates now available’.
“These fixed terms combined with flexible features provide exceptional certainty for customers and are a stated priority of the Government (ref: Programme for Government),” Mr Kane said.
Indeed the lender is partially backed by the Government, with the Ireland Strategic Investment Fund (ISIF) owning 30% of the business.
“We only distribute our mortgages through regulated intermediaries which ensures that all of our customers have advice about the suitability of any product to their specific needs,” Mr Kane added.
The fixed rate terms launched by Finance Ireland are for periods of 10, 15 and 20 years. The fixed rates range from 2.40% to 2.99% (annual percentage rate of charge (APRC): 2.58% – 3.06%) depending on Loan to Value (LTV) and the fixed term period. A 20 year fixed rate mortgage for up to 90% of the value of the home is priced at 2.99% (APRC: 3.06%).
Mortgage expert Martina Hennessy, Managing Director of doddl.ie, said the provider’s new offerings were structured to appease traditional concerns about long-term fixed rate products.
“In addressing four keys ways why long -term fixed rates may appear unattractive to Irish consumers, Finance Ireland is introducing a unique offering to the Irish market,” Ms Hennessy said.
The rate will reduce over time, you can overpay up to 10% of your outstanding balance without charges, the rate is portable and there is a capped break penalty.
“Their 15 and 20 year fixed rates are products that we see elsewhere in the eurozone, where rates are lower.
“Uniquely, with this fixed-rate product, if your loan to value drops then your rate will fall over time, assuming your value holds or increases.” The fixed rate will decrease as the loan is paid down versus the property value. Finance Ireland have also said LTV (loan-to-value) driven reductions to a customer’s fixed rate will be downward only – rates will never increase even were there to be a deterioration in house value versus loan outstanding.” Ms Hennesy also sees the extra repayment option and portability as key features.
“You can pay up to 10% of your outstanding mortgage balance in every year of your fixed-rate term, without early repayment charges,” she said. “Crucially, if you stay with Finance Ireland and you move house, you can transfer the rate on your current mortgage to your new home without incurring a penalty.
“They have also included a maximum early repayment charge which caps exposure to potential large break penalties.” Joey Sheahan, Head of Credit, MyMortgages.ie described the options as a ‘big day for the Irish mortgage market’.
“This news from Finance Ireland is really likely to shake things up – both in terms of how mortgage holders approach their choice of term and rates, and in the fact that if the demand for these products are strong, other lenders will make moves to bring similar offerings on stream – if they are not already in the process of doing so,” he said.
The Finance Ireland news was followed by an announcement from Avant Money, which launched Ireland’s lowest four and ten-year fixed rate mortgages and reduced rates on its existing seven-year fixed rate product. The new ten-year fixed rates will start from 2.1%, with four-year fixed rates starting from 1.95%. These rate reductions from Avant, which has caused a major stir since entering the Irish market last year, have been described by the Association of Irish Mortgage Advisors as ‘very good news for mortgage customers’.
These announcements won’t solve the massive issues of cost and supply in the Irish housing market but it does mean more choice available to those in a position to take out a mortgage.
Rates range from 2.40% to 2.99% and will be available for up to 90% loan to value mortgages.
Non-bank lender Finance Ireland is launching a range of long-term fixed rate mortgages for home owners in Ireland, with options up to 20 years available.
The company, which entered the residential mortgage market in 2018, will also offer 10 and 15-year fixed rate mortgages, with rates ranging from 2.40 per cent to 2.99 per cent, depending on the loan to value and the period.
The maximum term of 20 years is twice as long as currently available to Irish mortgage customers. Even then, the 10 year fixed rates are typically offered on loans with a loan to value of typically around 60 per cent, although some will offer on as much as 80 per cent loan to value.
Finance Ireland’s new products are targeting owner-occupiers, rather than buy to let investors, and could appeal to customers finishing fixed rates with existing lenders, including Ulster Bank and KBC Ireland who are set to leave the Irish market. The company distributes its mortgages through brokers. The State’s Ireland Strategic Investment Fund (ISIF) and US investment giant Pimco each hold 31 per cent stakes in the Billy Kane founded company.
The rates will be available for up to 90 per cent loan to value mortgages, and customers will be able to move their mortgages to new properties during the term without incurring penalties, Finance Ireland said.
The fixed rate can also be decreased as the loan is paid down versus the property value, and customers will be able to overpay up to 10 per cent of the outstanding mortgage balance as a lump sum in each year of the fixed term, should their financial circumstances allow.
Managing director Donal Doran said those details were essential to the product. “It’s very clear that you cannot put out a 20 year fixed rate without the flexibilities,” he said. “We’ve developed this based on feedback and what brokers believe their customers have been asking them.”
The loans will also allow for changes in personal circumstances, with the penalty for repaying the loan early capped at 5 per cent of the loan balance in the first five years of the loan term for 15 and 20 year loans, and 2.5 per cent for the following five years. In the final five years of the 20 year loans, no early redemption charge will apply.
‘Booster shot’
The move was welcomed by Brokers Ireland, who said it gives a “booster shot” to competition and brings security to Irish mortgage holders.
“We have always maintained that mortgages are long-term products for which lenders can readily source long-term funding. That makes them very secure – for consumers and for lenders,” said Rachel McGovern, director of financial services at Brokers Ireland. “That they are only now entering the Irish market indicates just how staid, unimaginative and above all non-consumer-friendly the Irish mortgage market has been. In fact 10 year mortgages have only been introduced in recent years.”
However, she noted the rates were still higher than in other European countries, where long-term fixed rates have been the norm for years.
The announcement was a “good news day for new and existing mortgage holders”, said chairperson of the Association of Irish Mortgage Advisors Trevor Grant.
The country had become “accustomed to accepting uncertainty around the cost of financing our home purchases”. “If a developer told us the price of a house could be €300,000 or maybe €350,000 or possibly even €400,000 and that they could only confirm the price after we bought the house, we’d run a mile, yet we seem to accept uncertainty when it comes to the cost of mortgages.”
Managing director of mortgage advice company doddl.ie, Martina Hennessy, said the news was “a boost to the broker market”. “Crucially, if you stay with Finance Ireland and you move house, you can transfer the rate on your current mortgage to your new home without incurring a penalty.”
The move is likely to put pressure on other lenders to see them follow suit, said
Joey Sheahan, head of credit at MyMortgages.ie.
“This news from Finance Ireland is really likely to shake things up – both in terms of how mortgage holders approach their choice of term and rates, and in the fact that if the demand for these products are strong, other lenders will make moves to bring similar offerings on stream.”
‘Significant innovation’
Mr Kane, chief executive of Finance Ireland, said, “I’ve been involved with the Irish mortgage market for over 30 years and I believe that this is one of the most significant innovations made here in that time,” said.
Finance Ireland entered the home loans market in late 2018 after it bought Pepper Money’s €200 million home loans portfolio and mortgages platform, with UK asset manager M&G Investments providing the funding.
It was forced to abandon plans for a €100 million-plus initial public offering in May 2020 as the rapid spread of Covid-19 globally threw equity markets into turmoil. Mr Kane, a former chief executive of Irish Permanent said last month it would look at floating on the stock market in the second half of next year at the earliest.
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A new mortgage option is set to shake up the market here as it offers Ireland’s first 20-year fixed-rate mortgage, providing a massive boost for the struggling property market.
Finance Ireland is launching a range of competitive long-term fixed-rate loans with rates for a 20- year fixed term mortgage ranging from 2.4% to 2.99% for up to 90% loan-to-value mortgages.
And best of all, the non-bank lender is backed by taxpayer cash, as the State-owned Strategic Investment Fund has a 30% stake in Finance Ireland.
The welcome move will pile pressure on banks to offer more competitive mortgage rates, something that is seen as a major boost for homebuyers.
The new cut-price rates would see homeowner repayments of just €1,052 a month on a €270,000 30-year mortgage with the first 20 years fixed at 2.99%.
Finance Minister Paschal Donohoe was not involved in the decision to back the deal but a spokesman said yesterday: ‘The Department [of Finance] welcomes the announcement which provides a new product for customers and will help to drive competition in the mortgage market.’
It came as President Michael D. Higgins yesterday became the latest to comment on the country’s housing crisis, saying that ‘radical solutions’ are ‘urgently needed given the magnitude of a housing crisis that is not abating’.
Reports published this week highlight a chronic shortage of properties that have resulted in soaring house prices while rents continue to skyrocket.
The historical new low 20-year fixed-term home loan was hailed by housing campaigners last night as welcome news for families struggling to get on the property ladder, saying other banks are sure to follow suit.
David Hall, of the Irish Mortgage Holders Organisation, said: ‘It’s good news and gives some people certainty for 20 years.’
The announcement was a ‘good news day for new and existing mortgage holders’, Association of Irish Mortgage Advisors chairperson Trevor Grant said.
Currently, the longest fixed-rate mortgage available in the Irish market is seven years – with a handful of providers offering a ten-year term but capped at an LTV of 80%. The Finance Ireland fixed rates are available for up to 90% LTV mortgages.
Rachel McGovern, director of financial services at Brokers Ireland, said: ‘That they are only now entering the Irish market indicates just how staid, unimaginative and, above all, non-consumer-friendly the Irish mortgage market has been. In fact, ten-year mortgages have only been introduced in recent years.’
Joey Sheahan, head of credit at MyMortgages.ie, said: ‘This news from Finance Ireland is really likely to shake things up – both in terms of how mortgage-holders approach their choice of term and rates, and in the fact that if the demand for these products are strong, other lenders will make moves to bring similar offerings on stream.’
The new lender is offering European-style home loans fixed for 20 years from as low as 2.6%.
Its arrival is sure to be welcomed by borrowers after recent announcements by KBC and Ulster Bank that they are pulling out of the Irish banking market.
Finance Ireland chief Billy Kane said: ‘I’ve been involved with the Irish mortgage market for over 30 years and I believe that this is one of the most significant innovations made here in that time.
‘We’ve been working on the introduction of longer dated fixed-rates for some time now in order to allow customers benefit from the historically low interest rates now available. These fixed terms, combined with flexible features, provide exceptional certainty for customers and are a stated priority of the Government.
‘We only distribute our mortgages through regulated intermediaries which ensures that all of our customers have advice about the suitability of any product to their specific needs.’
A spokesman for the Ireland Strategic Investment Fund (ISIF) said: ‘All ISIF investments are made on a commercial basis, in line with its double bottom line mandate of generating a commercial return and supporting economic activity and employment in Ireland. The announcement of new mortgage products today is a result of a commercial decision by the management of Finance Ireland, in which ISIF holds a minority shareholding.’
The maximum term of 20 years is twice as long as currently on offer in the mortgage market and will mean some home-buyers may be able to have a fixed rate for the full term of their mortgage.
The fixed-rate terms launched yesterday are for periods of ten, 15 and 20 years.
The fixed rates range from 2.40% to 2.99% depending on loan-to-value and the fixed-term period.
A 20-year fixed-rate mortgage for up to 90% of the value of the home is priced at just 2.99%.
Customers can also move their mortgage to a new property during the term of the fixed rate without incurring any penalty, can pay back a lump sum of up to 10% of their outstanding balance, without penalty, in each year of the fixed term.
Trevor Grant, of the Association of Irish Mortgage Advisors, said: ‘Given the recent negative news regarding KBC and Ulster Bank, this is a good news day for new and existing mortgage-holders and for competition in the market.’
With Irish people reported to have saved more than €13b during the pandemic, while adapting to remote working and achieving a better work/life balance, many are now looking to take control of what happens next as they consider their future.
The pandemic triggered a lot of new perspectives for Irish people, not least around lifestyle, family well-being and the home. Remote working became a catalyst for change as the daily commute disappeared and people have had more time to look around at their homes and how it meets their family needs. The appetite for building, extending and trading up and even away from urban locations to more space, amenities or proximity to the family network is growing. Here we look at what’s involved in trading up, and if it’s the right time to move to a property more suited to your needs? Before you take that step onto the next rung of the property ladder Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach recommends some key steps as you plan your next move:
Hold onto your cash
If you are thinking about trading up, it’s wise to keep your powder dry, i.e. hold onto your cash reserves. Lenders want to see that you have 6 months of savings to cover your mortgage repayments in the event of unexpected expenses and in order to avoid early default. Just to be clear, cash or liquid assets include balances in current and savings accounts and investments such as stocks, shares or cryptocurrency. There are a few actions you can take to free up cash, if required, so you have the requisite cash reserves:
– Stop overpaying your mortgage now. If you’ve been paying extra every month or on an ad-hoc basis to reduce the term of your mortgage, bring your repayments back to the terms of the mortgage agreement. Use that extra cash to build up your savings.
– Don’t use cash reserves to make any sizeable purchases. If you absolutely need to
change your car, for example, take out the maximum loan over the longest period
and at the lowest interest rate instead.
– Delay making any unnecessary purchases using cash or credit until after the
mortgage process has been finalised.
You’ve prepared the groundwork: reduced your outgoings, built up your savings, but you’re still struggling to come up with the 20% deposit required as you are a non-first-time buyer. An example can help show the way.
Mark and Aisling plan to sell their two-bedroom apartment for €300,000 and buy a four-bedroom house for €400,000. Because they are second time buyers, they are limited to a loan amount of €320,000 (i.e. 80% LTV). They had €50,000 cash savings. However, they need to sell their existing apartment to fund the balance of the deposit. Their loan on the apartment is c.€200,000 so they should net c.€90,000 after selling expenses such as auctioneers and legal fees have been deducted. This process of selling one property and purchasing another simultaneously can be challenging so some people will firstly sell their existing property so that they have cash in the bank. Then, either move in with family or rent a property so that they are a stronger buyer for the house that they wish to trade up to and are not dependent on the sale of their existing property.
Central Bank Rules for Second-Time Buyers
In February 2015, the Central Bank introduced a range of measures for mortgages aimed at maintaining financial stability and protecting consumers. The measures set limits on the size of mortgages that consumers can borrow based on loan-to-value (LTV) and loan-to-income (LTI). Under LTI rules, a limit of 3.5 times gross income applies to all borrowers. First-time buyers can borrow up to 90% of property value. Second-time and subsequent buyers can borrow 80% of the property value only, which of course also applies to people looking to trade up.
Exemptions
If you’ve explored all avenues and still can’t come up with the 20% deposit, you may be able to avail of an exemption. There are two types of exemptions available, but lenders may grant an exemption under the loan to value rule or the loan to income rule, but not both.
I’ve found that most of the applications for exemptions to the Central Bank rules are from second-time buyers.
Loan to Value
Lenders can apply exemptions up to 20% of the total value of home loans that they grant to second and subsequent buyers. This means that it’s possible for second-time buyers to borrow up to 90% of the purchase price, reducing the deposit required to 10%. Under current rules, someone trading up to a house with a purchase price of €350,000 would require a deposit of €70,000, but just €35,000 if they got the exemption that meant the LTV increased to 90 per cent.
Loan to Income
Under loan-to-income exemptions, lenders can circumvent the 3.5 times gross income rule in 10% of second-time cases. It is possible to get the gross income multiple increased to four or even 5 times an applicant’s combined annual gross income (i.e. before tax).
Being granted an exemption of this kind can make a significant difference to the amount. you can borrow. For example, a couple with a combined income of €100,000 can borrow €350,000 under the rules. If they can get an LTI exemption, they can potentially borrow up to €500,000.
Take the example of Mary who previously owned an apartment with an ex-boyfriend. She wants to buy a house now. Despite saving hard for two years and keeping a clean credit and banking record, she’s 2% to 3% short of the 20% deposit.
An opportunity has come up to buy her dream house and at a great price, as the sellers are emigrating and are looking to sell quickly. Lenders tend to prefer applicants who have a particular property in mind and will complete the transaction in the short-term. With the assistance of a good broker, buyers like Mary who tick the right boxes may be able to secure an exemption from her bank under either the LTV or LTI rule.
Decisions are made on a case-by-case basis. Most lenders will require a minimum level of income; for example, a sole applicant will need an income of €40,000 or joint applicants will be earning at least €70,000, but this varies from bank to bank.
Remember, as stated earlier, you can apply either for a greater LTI multiple or a higher LTV, but not both.
Note: if you receive an exemption on the loan to income rule, allowing you to increase the amount you can borrow, you will need a bigger deposit.
It’s also worth noting that if the gap between what you need to borrow and what you can under the current rules is relatively small, e.g. €10,000 or so, it’s unlikely your bank will “give up” an exemption as it’s the whole loan that is classified as an exemption as opposed to just the amount of €10,000 over 3.5 times the income.
In conclusion, trading up can be more straightforward than people may think. With the right advice from an authorised mortgage broker, who will navigate you through this process, approval can be obtained even if your situation is not clear cut at the outset. There is some excellent value in properties at the moment so the best advice is to do the research and groundwork now and be ready to make your move when the time is right for you!
On Friday 16th April, it was announced the KBC were looking to sell their Irish business to Bank of Ireland. The understandable uncertainty has led to many of their mortgage holders looking at moving their mortgage to another lender for a greater sense of security. We have received an influx of calls from mortgage holders with KBC, asking whether or not they should be looking to move their mortgage to a different bank and what their options are.
This process will take some time to complete and KBC continues to have a duty of care to current customers and obligations to fulfil in that regard, so mortgage holders should not be worried or anxious.
That said, it would be prudent to look at this time as a chance to review your current position mortgage-wise – primarily what rate you are paying, and how this compares to what is currently being offered in the market. Although KBC’s departure from the Irish market is not a positive development in the Irish banking sector – particularly, from both a competition and an employment perspective, the uncertainty surrounding KBC’s future could at least turn out to be a beneficial wake up call to mortgage holders who are paying rates in excess of what they could get elsewhere.
The arrival of Avant Money to the market has seen many mortgage holders with mature mortgages, and/or a strong loan to value, switch to exceptional market-beating rates.
We are advising any KBC customer that is on a rate greater than 2.3% to review their options. But this doesn’t apply to KBC mortgage holders alone – anyone paying more than this, regardless of which lender they are with, should be talking to an expert to see if they can get a better deal either with their current lender or with a different provider. And don’t let whether you are on a fixed or variable rate stop you – you may well still have options to move.
If you would like to complete an initial assessment to see what potential savings you could make by switching, click here for the form and we will review and respond to you directly.
Should I switch?
Just like you shop around for cheaper or better car insurance or electricity provider, it’s worth reviewing your mortgage every few years to see if you can make savings.
What is Switching?
Switching is the term used to describe the process of changing mortgage provider. This is usually done to get a lower interest rate on your mortgage from a new lender with a view to saving money on interest.
Some people go through the entire term of their mortgage without considering whether their lender is offering them the best rate. However, it is prudent to review the terms of your mortgage on a regular basis – perhaps as part of a wider financial ‘health-check’. You don’t need to switch every year, but it’s a financially savvy move to take the time to consider the current market, the value of your property, and the interest rates on offer from all lenders on an ongoing basis.
My Neighbour is Doing it – Can I?
The answer is, most likely, yes. I estimate that one in every three mortgage holders would save by switching. (I am not including European Central Bank related tracker interest rates in these figures as they currently offer low interest rates given that the ECB base rate is 0%, meaning a typical tracker mortgage interest rate is approximately 1% and such mortgages have not been available in Ireland since 2008.)
If you have been on the same rate for more than three years, or you are coming to the end of a fixed rate period, then you should certainly review your options.
Regardless of whether you are a variable or a fixed rate mortgage holder, you could potentially save tens of thousands of euros over the remaining term.
The Myths and Misconceptions
– ‘I can’t switch if I’m on a fixed rate.’ Not true. You can break a fixed rate contract. We see many banks currently do not have a breakage fee however you may be charged a breakage fee by your lender, but the savings you make upon switching, plus, potentially, any cashback offer from a new lender, could more than cover the charges. In addition, due to the current low cost of funds available for banks, many don’t impose a fee for exiting a fixed rate contract. You will need to call your bank to check this, however.
Looking at Mick and Fiona for example, they have a home loan with €300,000 outstanding. They are currently on a fixed rate of 3.6% for the next two years with 28 years left on their mortgage term. They contact their bank to check the early fixed rate breakage fee and are advised that the fee is €1,050. They contact a mortgage broker who advises them that if they switch lender, they can obtain a two-year fixed rate of 2.3%, which will reduce their monthly payment from €1,418 to €1,211 which is a saving of €207 monthly or €2,484 annually or €4,968 over the two-year period. So, in this example, even though Mick and Fiona are liable to pay a breakage fee of €1,050, it is worthwhile as they will save €4,968 over the next two years alone.
Mary & John
Before Switch
After Switch
Fixed 2 Yr interest rate 3.6%
Fixed 2 Yr interest rate 2.3%
Monthly repayment €1,418
Monthly repayment €1,211
Total savings over term €4,968*
*savings excluding breakage fee
– ‘I need to have a LTV of less than 80% on my home.’ Again, not true. While some lenders will offer you a better rate according to the amount of equity you have built up, you can still switch if your LTV is between 80% to 90%.
– ‘Switching is a long and difficult process.’ Not true. Switching can be straightforward with the help of an expert and some banks require less documentation for switchers than for a new application.
– ‘I’ll just end up spending any savings made on the legal costs of conveyancing’. (Conveyance is the legal term for processing the paperwork involved in buying and selling a property and transferring the deeds of ownership). Not true. You will know in advance, once you or your broker runs the numbers whether the savings made will outweigh any ancillary costs that may be incurred. If you stay with the same lender but move to a different rate, then you may not incur any additional costs.
Cash Back on Switching
The impact can be significant. If we look at Rua and Kerry’s experience, they took a €400,000 mortgage over 35 years at a three-year fixed interest rate of 3.6%. The interest rate they selected at the time of draw down was reasonably competitive and they also received upfront cashback from their lender. However, their rate is now changing to a higher variable rate of 4.2%. Their payments will be going to €1,805 monthly. They have tried to negotiate a lower variable rate with their current lender without success so they decided to switch to a lower variable rate of 2.95% with another lender which will reduce their monthly payments to €1,534. This will save them €268 monthly or €3,212 annually or €102,912 over the remaining 32 years of their mortgage. In addition, they receive €2,000 from the new lender, which covers the legal fees involved in switching.
Ruth & Ken
Before Switch
After Switch
Fixed 3 Yr interest rate 3.6%
Variable interest rate 2.95%
Monthly repayment €1,802
Monthly repayment €1,534
Total savings over term €102,912
What Will I Need?
If you decide to proceed with switching, you will need to go through the mortgage application process and submit your documentation. This varies from lender to lender. Typically, you will require the following documents:
– Passport Identification.
– One recent payslip, Employment Detail Summary and salary certificate.
– Three/six months recent current account statements – depends on lender requirement.
– 3 Most recent credit card statements.
– Most recent mortgage statement.
– Relevant application form and bank declaration.
Where Do I Start?
– Contact your existing lender to confirm your rate of interest, balance outstanding and term remaining on the mortgage.
– If you are on a fixed rate, ask your lender what fee, if any, they charge for breaking the mortgage contract.
– Ask your current lender to review your interest rate and enquire about variable and fixed-rate options for an existing customer.
– Contact a mortgage broker and ask them to compare your existing mortgage terms to what’s on the market. (Technically, you can do this research yourself, but it will mean numerous calls to multiple lenders so in reality it’s probably not the easiest route for you to take.) The more equity you have in your home, the better the new terms you’ll be offered, but you can switch even if your loan is 90% of your value.
– Your broker can check what incentives other lenders are offering to switchers. The ‘incentive’ usually covers the legal costs, as well as any possible breakage fee, although this would need to be worked out on a case-by-case basis.
– Assess the best value option for you. A broker can run calculations on the interest rates you have been offered to see the potential savings you can make. This should not be a complex process. But there is market research to be done and there are lots of forms to be filled and boxes to be ticked. A broker will do all the legwork, calculations and communicate with lenders on your behalf and explain all of your options.
– You will need to decide whether to stick with your current lender or move to a different one. Moving to a different provider will mean going through the mortgage approval process again. Changing lenders can be relatively simple if you have expert help.
– Ultimately you need to ask yourself a question: why would I stick with a lender that is not giving me the best value?
Take your time, weigh up all your options and seek expert advice to help you decide if switching is the best course of action.
How Much Can I Save?
Switching to a lower interest rate can save you a considerable amount of money in the long term depending on the rate and capital amount.
Let me give you an example of savings on an interest rate reduction of 1.6%. By switching from a 4.2% rate to 2.6%, a mortgage holder with a loan of €350,000 over 30 years can save over €300 per month, €3,732 per year or €14,897 over 4 years.
Before Switch
After Switch
Variable interest rate 4.2%
Variable interest rate 2.6%
Monthly repayment €1,712
Monthly repayment €1,401
Total savings over 4 years €14,897
In summary, it costs mortgage holders absolutely nothing to explore what ‘switching’ their mortgage can yield them in interest savings. I have sought to challenge and address any lack of knowledge or awareness by outlining the process and the financial benefit to be gained from taking this step.
People can often be put off by their first mortgage experience, which for many is stressful. However, the second time round should be a lot more straight-forward. Yes, of course there will be forms to fill, but the rewards for this bit of administration can be in the region of thousands and life changing as a result.
Q My husband and I have our eye on a nice ‘fixer-upper’ for €120,000. It’s a bit of a project and needs about €100,000 to bring it up to scratch. We wonder how much can we borrow as second time buyers? Is it 80pc of the sale price, or 80pc of the house plus the cost of renovation works?
A As second-time borrowers you can borrow up to 80pc of the value of the home, according to head of credit at MyMortgages.ie Joey Sheahan. If you propose to spend in the region of €100,000 on construction, for example, you can borrow 80pc of the cost of the works once the value of the property increases by the amount of the works. Therefore, if you are keen on the house from your viewings, get an engineer, architect or quantity surveyor to cost the works.
So you’re thinking of buying a fixer-upper? Maybe it is a faded period charmer that hooked you, or an ugly bargain on a great street. But before you sign a contract, some hard questions will help you sort the diamond in the rough from the money pit.
Assess
When, halfway through a home renovation, TV presenters announce “Asbestos!’, building surveyors must scratch their heads. “It makes good telly, but that would have been evident if a good inspection was done on day one,” says Noel Larkin of Noel Larkin and Associates Chartered Building Surveyors. His top recommendation for those buying an old house is to get a building survey done first. This should eliminate surprises and indicate the cost of renovation.
New figures from the Central Bank show the average interest rate for new mortgages in Ireland is 2.79%
Ireland had the second highest rate in December but overtook Greece in January.
The average rate in the EU is 1.29%.
Joey Sheahan of MyMortgages.ie says while the difference in rates may seem small, it is significant:
“1% difference in your mortgage could be as much as 57,000 interest over the term, so if you have a 300,000 mortgage over 30 years that can be the difference of up to 57,000 over that term.”
