New mortgage option set to shake up the market for homebuyers

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.

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.’

Source: https://extra.ie/2021/05/14/business/property/new-mortgage-option

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!

Thinking of getting a mortgage in 2020? Or switching for lower rates? Here’s what our customer John Fuller thought of the service at MyMortgages.ie

https://youtu.be/rEenQEW8h2s

An extension of the Help-to-Buy scheme is crucial and it should be expanded to include all buyers of a primary residence not just first-time-buyers. This is the contention of experts at MyMortgages.ie, who say while it’s widely accepted that first-time-buyers need the security of the Government financial support scheme being extended past its December 2019 deadline, second-time-buyers have had less attention, with falling numbers in mortgage approvals showing that they too are struggling.

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