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    Home loan limbo – the growing number of buyers struggling to get their mortgages

    Many housebuyers who’ve been directly or indirectly affected by the Covid crisis are experiencing issues with banks and accessing mortgages.

    Those who will struggle to get a home loan now range from people in receipt of the pandemic unemployment payment (PUP) to those who are not affected directly by Covid-19 supports, but who work in a sector seen as vulnerable.

    It was supposed to be the dream move for Anne and Barry, but rather quickly it turned into a nightmare.

    After nearly a year-and-a-half of living with Anne’s parents back in Cork following the couple’s move from Dublin, both decided in January that it was time to fly the coop once again and move into their own home.

    When they first moved to Cork, Anne got a transfer with her job in retail, while Barry managed to gain new employment in the hospitality industry as a chef. After the pre-requisite six months of continuous work in their new positions, they set about looking for a mortgage via the services of a broker.

    Things were proceeding well until the pandemic hit Ireland in March. Along came lockdown, and the processing of Anne and Barry’s mortgage came to an abrupt halt.

    As the nation emerged from its Covid-enforced hibernation, the whole of Ireland felt optimistic – as did both Anne and Barry. The search for a new home and mortgage restarted, much like the economic activity across swathes of sectors previously shut down.

    Come September, Barry’s employer moved from the Temporary Wage Subsidy Scheme (TWSS) to the new Employment Wage Subsidy Scheme (EWSS), which doesn’t show up on an employee’s wage slip. The business also introduced a takeaway service with a lot of success, meaning Barry had a powerful letter of undertaking in his arsenal that said his job was secure.

    The couple found the house for them and had their mortgage approved. Things were looking up, until the dark clouds of Covid swirled overhead.

    “We contacted the broker on the Wednesday to talk about getting the letter of proof, leading to drawdown,” said Anne. “On the Thursday, all the rumours started breaking about the country going back to Level 3 lockdown. I asked if that was going to affect our drawdown, but the broker said ‘Let’s wait and see’.”

    For Anne, the nerves started. The couple they were buying the house from were pushing for a quick sale. Doubts about Anne and Barry’s ability to drawdown the mortgage grew stronger.

    The country officially moved to Level 3 lockdown and restaurants were limited to takeaway. Barry’s employer became a cause for concern for lenders due to its use of EWSS.

    The bank would not proceed with the drawdown after it discovered Barry’s situation.

    Despite the best efforts of the couple’s broker, and the advanced nature of the process, Anne and Barry did not get their mortgage. The lender eventually withdrew the offer when the country went to Level 5. The couple couldn’t proceed.

    “I was absolutely devastated,” Anne said. “[I was] very emotional. We had come so far; we had been waiting for this for a very long time.

    “We weren’t out of pocket, but we were out of hope,” she added.

    This example is not an isolated incident. While the names of the couple have been changed, the details are all too familiar for many across Ireland.

    The Sunday Independent has interviewed other would-be home buyers and uncovered additional examples of those who have also experienced problems securing and drawing down their mortgages due to Covid-19.

    Some spoke of being asked whether they or their employer receives a Covid-19 payment, as well as having mortgages agreed in principle subject to their employer coming off Covid-19 supports. Others reported that the communication from their banks regarding any change of circumstances to their mortgages had been poor, causing additional stress. Many feel they have been left in limbo.

    Last week, the banking sector’s communication of changes to the mortgage application process to consumers prompted the Central Bank of Ireland (CBI) to write an open letter.

    Addressed to the CEOs of Ireland’s mortgage providers, the letter states that some mortgage lenders have not sufficiently considered the impact of changes, such as additional credit checks before the drawdown of mortgages, on customers in the mortgage application process. It also said some had not managed communications with these customers in a proactive or consumer-centric way.

    The letter outlines that CBI expects mortgage lenders to clearly communicate with customers at all stages of the mortgage application process, including those customers who have already received loan offers.

    “Mortgage lenders must make clear to customers that where there has been any material change to the customer’s circumstances prior to the drawdown of funds, the loan offer may subsequently be withdrawn, paused or varied. At a minimum, this communication must be included in the loan offer letter,” wrote Helena Mitchell, head of consumer protection at the CBI, in the letter.

    Anne acknowledged the letter from CBI to the banks, but said she was still frustrated.

    “We felt very much like the last people to know,” she said. “The banks have let us down. We have already bailed them out once. They made a promise, and they reneged on it.”

    While emotions are high regarding mortgages, some believe that the banks are being prudent. Memories of the bailout are still very much raw in the industry – no bank wants to see the same happen again.

    Banks and mortgage providers contacted by the Sunday Independent, including Bank of Ireland, AIB (which includes EBS and Haven), Permanent TSB, KBC, Ulster Bank and Dillosk, all said that they need to be responsible lenders – not only during the pandemic but at all times.

    Most banks talked about ensuring up-to-date financial information is being shared, confirming that customers would have a continuous stream of income and ensuring they can afford the mortgages sought. Most banks said they were still open to applications from all workers from all sectors and were still facilitating loans.

    However, an analyst at Goodbody Stockbroker recently pointed to the potential for diverging trends with mortgage approval rates and drawdown. Examining mortgage figures released by the Banking and Payment Federation of Ireland (BPFI) last month, the analyst said one reason for a future gap could be a reluctance by banks to sanction drawdowns for those whose firms are on Government support in the second lockdown.

    The BPFI figures said 4,621 mortgages were approved in September 2020, up 19.3pc on the month and 20.8pc on the year, valued at €1.12bn.

    Looking at drawdowns, however, 8,220 new mortgages to the value of €1.95bn were drawn down by borrowers during the third quarter of 2020. These figures represent a fall of 30.3pc in volume and 25.8pc in value on the corresponding third quarter of 2019. It should be noted that drawdowns were up on the previous quarter.

    While most banks claimed they continued to process applications and facilitate drawdowns, brokers on the ground have expressed concern.

    Michael Dowling, a broker who owns Dowling Financial, estimates that 400,000 to 500,000 people may struggle to get a mortgage due to Covid-19 concerns from banks.

    Those who will struggle to get a home loan now range from people in receipt of the pandemic unemployment payment (PUP) to those who are not affected directly by Covid-19 supports, but who work in a sector seen as vulnerable – such as construction, retail, hospitality or aviation.

    “There is a lack of clear communication around what the banks are prepared to accept and what they are not prepared to accept,” said Dowling. “And there are inconsistencies then in terms of the way banks apply the criteria.”

    He said while he respected that banks had the right to apply their own criteria, he pointed to the joint payment breaks agreed across the industry, which had worked well.

    Dowling mentioned AIB, which did a U-turn in the summer after effectively halting applications from those on State supports.

    “Some banks said they have no issue with accepting applications [from those on Covid-19 supports] but they weren’t proceeding to loan offer, which is the second part of the process,” he said. “And then all banks have a uniform in relation to drawdowns. There is an insistence that you’re not on a Covid-19 payment, or more importantly, that your employer is not benefiting from a Covid-19 payment.

    “Ninety-nine times out of a hundred, they just won’t release the funds if that particular situation arises. In the letter [from the bank] they are asking if you as an employee are benefiting, and is your company benefiting [from Covid support schemes].”

    Dowling said in some cases banks are seeking letters from employers at several stages of the process – application, loan approval specific to a property and before drawdown – sometimes all within a matter of weeks.

    In companies where a portion of staff are being supported via Covid schemes, other employees may find themselves under greater scrutiny.

    Dowling gave an example of a senior employee at a company who is earning a six-figure sum. Although his salary is not affected by any scheme, the majority of workers at the company are.

    “Banks are nervous then because they are saying maybe the company is under pressure.

    “I can tell you at the moment that anyone employed in what the banks have defined as vulnerable industries – retail, hospitality, airline, construction and leisure – well, the banks are taking a view on that,” he added. “I wouldn’t like to be a pilot now trying to get a mortgage.”

    The broker said that the actions of banks could be called a “blacklisting” of particular sectors.

    When the first lockdown was lifted, the banks remained cautious about these vulnerable sectors. Dowling believes that even next year, banks will want to see that specific companies can rebound before considering staff for loans.

    Industry group Brokers Ireland backed up Dowling’s claims and said that banks are now assessing employers and their risks, rather than the individual applicant.

    AIB, Ulster Bank, Dillosk and KBC said they reviewed applications on a case-by-case basis.

    Bank of Ireland said it assesses each application carefully, taking individual customer circumstances into consideration. It said it wants to approve mortgages responsibly, and considers criteria such as the type of employment or industry as well as evidence of consistent income.

    Permanent TSB said it did not exclude any sector from applying for a loan, and is working with its customers on a case-by-case basis.

    As Ireland remains firmly in the grips of Covid- 19, and with fears growing that lockdown isn’t quelling the pandemic’s spread, Anne and many others like her fear the dream of owning their own property is further away than ever before.

    Looking ahead, Anne, who is pregnant, said she didn’t think she would be in her own home for the foreseeable future. She doesn’t believe Barry will be off the Covid support any time soon.

    “We were hoping to be in the house now,” she said. “Our second baby is due in March. If my partner doesn’t come off the EWSS, then we are not going to be in a position to apply for another mortgage until after I return from maternity leave, in which case it would have to be another six months in employment.

    “We are looking to at least two or three years down the line,” she added. “That is too late for us. We have come so close.”

    The BPFI response

    Both borrowers and mortgage brokers say they are seeing changes to bank lending practices first hand. Those spoken to by the Sunday Independent said banks were not allowing some people who were in receipt of Covid-19 supports to draw down their agreed mortgages, while other said certain sectors were being effectively blacklisted.

    In response to questions, Brian Hayes, the chief executive of the Banking and Payments Federation (BPFI), said customers may be asked to confirm their employment and income situation had not materially changed as they move through the mortgage process.

    “In cases where changes have occurred, and depending on the circumstances of each individual case, a review with the applicant may be undertaken by the lender to determine whether or not the applicant can still afford to make agreed regular mortgage repayments,” he said.

    “This approach is considered to be clearly in the interest of both the customer and the lender to ensure that mortgages are not extended to those who cannot now or in the immediate future afford them. This is also in line with regulatory requirements set out by the Central Bank to ensure that borrowers can afford the loans they take out.”

    News by independent.ie, edited by Dowling Financial.

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