Your money: Seven things you must know on the new mortgage playing field
Cheaper home loans will be up for grabs for house hunters and homeowners in the coming weeks and months following the entry of a new mortgage lender to the Irish market.
Avant Money, a Spanish-owned lender, announced last Monday that it’s now offering mortgage interest rates of as low as 1.95pc in Ireland. The move is likely to spark a price war amongst Irish lenders. Indeed, on the same day Avant Money launched its mortgages here, AIB reacted by cutting some of its fixed mortgage rates.
Even if a mortgage price war kicks off, house hunters should remember that the Covid-19 crisis has changed the playing field for those seeking mortgages. Here are seven things you should know about getting a mortgage in the new normal.
Don’t bank on an exemption
It has become more difficult to get an exemption to the Central Bank’s lending since the Covid-19 crisis kicked off – with many banks restricting exemptions in recent months. This could make it more difficult for you to buy your dream home. Getting an exemption allows you to either borrow more than three-and-a-half times your salary when getting a mortgage or to secure a mortgage with a smaller deposit than the Central Bank rules stipulate. Without an exemption however, you must play by the Central Bank rules.
“Before the Covid crisis, people who qualified for the Central Bank exemptions could typically get them,” said Trevor Grant, chairman of the Association of Irish Mortgage Advisors (AIMA). “Once Covid happened, the banks largely stopped giving exemptions.”
Banks are only allowed to offer a certain amount of exemptions in a given year – and they face penalties if they breach those limits. This is at the heart of the stalemate in exemptions – because Covid uncertainty has made it difficult for banks to judge exactly how many mortgages will be drawn down by customers this year and therefore, how many exemptions they can feasibly offer.
Some of the banks are still offering loan-to-value exemptions – where you can secure a mortgage with a smaller deposit than is typically allowed, according to Michael Dowling, managing director of Dowling Financial. “However, demand for loan-to-value exemptions is low,” said Dowling.
You should probably wait until next year to get your mortgage if you’re banking on a loan-to-income exemption (where you can borrow more than three-and-a-half times your salary) – though this will depend on the banks becoming more open to exemptions by then.
“The banks are still trying to work their way through the exemptions they granted in the earlier part of the year,” said Dowling. “Banks had already given loan offers with exemptions in March – these could typically take between six and nine months to close [if they do].”
Your job is the be all and end all
Those with the best chance of getting a mortgage today are those whose job and income have not been hit by the pandemic. Amongst the best positioned to get a mortgage today are public sector workers and multinational employees, according to Dowling.
“Other sectors that banks are lending to include bank and insurance employees, and those working in the professional sector – such as in the large accountancy and legal firms,” said Dowling. “While some of these may have taken a pay cut in March [when the Covid-19 crisis first hit Ireland], most of their pay has been restored to where it was.”
It’s a different ballgame however for those working in sectors badly hit by the Covid 19 crisis. “If you’re in aviation, retail, hospitality, leisure or construction, expect difficulties drawing down a mortgage,” said Dowling.
You’ll struggle if on wage subsidy
Anyone on the Government Wage Subsidy will struggle to draw down a mortgage – even if a lender has approved the loan.
“Banks will consider applications from those who are on the Covid Wage Subsidy – but you usually won’t be able to draw down your mortgage until you’re off the Subsidy,” said Dowling.
Banks must ensure that customers don’t take on mortgages which they cannot afford – and that a mortgage is affordable at the point of draw-down. “Some people who were approved for mortgages before Covid but who are now on the Government Wage Subsidy and in vulnerable job sectors are not able to close on their mortgage,” said Grant.
“The reason for this is that the banks can’t get comfort as to whether or not the employer [of the mortgage applicant] is in the Subsidy Scheme because it is in financial trouble.”
Your bank may allow you to draw down your mortgage if your employer can provide it with an assurance that it will continue to employ you and that you will continue to be paid (generally at your pre-Covid salary level) after the Wage Subsidy comes to an end – though this will depend on the lender.
Once you come off the Wage Subsidy , getting a mortgage should be relatively straightforward.
“If you previously had a Covid payment – whether it was the wage subsidy or the Pandemic Unemployment Payment (PUP) – but you are now working and no longer on a Covid payment, you should be able to get a mortgage,” said Dowling. “You’ve nothing to worry about if you’ve a secure job and income and if your current account is in order.”
If you’re on the PUP, you’re unemployed and so no bank will consider offering you a mortgage.
Mortgage approval takes longer
Brokers say there has been an increase in mortgage applications in recent months – and that it is taking the banks longer to process those applications. “It’s now typically taking 20 days to get a mortgage approved whereas it took 10 days before,” said Grant.
Closing a sale takes longer
The closure of a house sale is often delayed today due to the extra documentation that must now be provided to banks prior to closing.
“The documentation end of things is a bit more stringent now than it was before Covid,” said Grant. “Now banks are looking for up-to-date payslips and in some cases, up-to-date bank statements prior to completion. So you have extra documents to provide at the end of the process and that can slow things down a bit.”
You still need to convince the bank
Even if your job or income hasn’t been impacted by Covid, you must still show your bank that you can meet the repayments for the mortgage you are seeking. So over the last six to 12 months, you must have either saved or paid rent equivalent to the repayments on the mortgage you are seeking – and have evidence (such as bank statements) to prove that.
You must also prove that you can meet the higher repayments under the lender’s stress test. Lenders must stress test all mortgages to ensure that borrowers can afford repayments if interest rates were to rise. So instead of just proving that you could afford monthly mortgage repayments of say €800 under today’s interest rates, you must also prove that you can afford stress-tested repayments of around €1,000 a month.
Your lender must be sure that you’re able to manage your money too – and it will examine your current account for proof of this “Try to avoid overdrafts,”said Dowling. “Have no unpaid direct debits or standing orders. Avoid referral fees – penalty charges you are hit with if there isn’t enough money in your current account to clear a direct debit, standing order or cheque – as these show your account is under pressure. If you have more than one or two referral fees in six months, that’s not what a bank likes to see.”
Don’t expect a deal on the house price
House prices have bounced back since the Covid-19 lockdown was lifted – so while it was often possible to negotiate down a price during lockdown, this no longer appears to be case.
“Brokers have not seen any significant price drops recently – only where a vendor is keen to sell so the vendor can buy,” said Grant. “Our experience is that properties are selling at asking price – or even above the asking price. We are seeing deals at the higher end of the market – where the vendor has an urgency to sell. In such cases, there may be a discount but the discount isn’t huge. Supply still is at best only matching demand.”
Who knows though, now Ireland is officially in recession again, house price falls may well be around the corner.
AIB offers a cash bonus of €2,000 to mortgage switchers. Ulster Bank offers a €1,500 contribution towards legal fees to first-time buyers, trader-uppers, switchers or buy-to-let investors taking out a new mortgage. In addition, Ulster Bank offers mortgage switchers a €500 cash bonus if they also move their current account to the bank — though this offer runs out tomorrow.
Bank of Ireland (BoI) and EBS offer 3pc cashback to first-time buyers, trader-uppers and switchers. Under these offers, 2pc of the cashback is paid after the mortgage is drawn down with the following 1pc paid after five years. BoI’s cashback is not available with its high-value mortgage fixed interest rate. Check the conditions of a cashback offer as you may lose out otherwise. For example, to get the 1pc cashback that is paid after five years, you must have made all your mortgage repayments in full and on time.
Permanent TSB offers 2pc cashback to first-time buyers on mortgage draw-down — and a further 2pc cashback on monthly repayments if the mortgage is paid from the bank’s Explore current account. KBC offers €3,000 cashback to switchers and €1,500 cashback to first-time buyers and trader-uppers. The €1,500 cashback offer is designed to support mortgage expenses such as legal and valuation fees and is only available to customers applying for a three, five or 10-year fixed interest rate.
Interest rate is key
No matter how tempting a mortgage perk, make it your priority to get the cheapest mortgage interest rate as this will save you tens of thousands (or more) over the lifetime of your mortgage and will be more valuable than any perk.
Public sector buying power
Public sector workers getting a mortgage from ICS Mortgages can borrow more than their current salary would normally allow — as ICS assesses mortgage applications from public sector workers based on what their salary is due to increase to in the near future. “The basic income of public sector applicants is considered to be two points up their current pay scale and we also factor in up to 100pc of their overtime and allowances when assessing their [mortgage] application,” said a spokeswoman for ICS Mortgages. Having your mortgage assessed in this way could substantially increase your purchasing power. Michael Dowling of Dowling Financial cited the example of a public sector worker seeking a mortgage who could be assessed on a salary of €105,00 instead of his current salary of €95,000. Be comfortable with the size of the mortgage and the repayments if borrowing based on what you are due to earn in the future.
News by independent.ie, edited by Dowling Financial.
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