Our property finance expert answers your questions – Nov ’21

Full article: independent.ie

Question

We are a couple who are saving for our first home. We both kept our jobs and full pay during the pandemic so we managed to save more than expected in lockdown and find ourselves ready to buy sooner than we had hoped as we have a 10pc deposit of €34,000.

We are now looking at making a mortgage application but haven’t a clue where to start because we didn’t think we’d be dealing with this until well into next year. Is it better to wait until we have saved more to get a better deal or go ahead now and look for the full 90pc?

We are worried that house prices will continue to rise and any extra savings be lost. What will banks look for in terms of what we can afford to repay?

Answer

You’ve done very well with such strong saving but I can detect a lot of stress in your email. While applying for a mortgage can appear challenging, it is actually quite a streamlined process with clear rules in place.

Your deposit would potentially permit €340,000 to be loaned to you, but this figure is dependent on your income and a maximum of 3.5 times income is allowed, unless you qualify for a specific exemption. I asked Martina Hennessy of Doddl.ie for her advice for you now about whether you should continue saving or proceed now.

“A key step in the home buying process is having your required minimum mortgage deposit of 10pc in place. You should, however, continue to save for the purposes of legal and other completion costs and also to continue to show evidence of repayment capacity”, she says, adding, “securing mortgage approval in principal (AIP) is the next step in the process for you.”

AIP confirms the amount a mortgage lender is willing to extend to you. You have the option to work with a broker who can offer market-based advice across a range of banks and non-bank lenders, or contact a bank directly.

Lenders tier their rates by loan to value, and the next tier for which lower rates would apply would be at 80pc, meaning you would need a 20pc deposit. This may not be achievable unless you are purchasing a new build and can avail of the help-to-buy scheme (this is available only to first time buyers, buying or building a new home).

Secondly, you need to establish the affordability of your repayments.

Lenders take a narrow window of the six months immediately preceding application, and will look at existing savings, rent payments, loans which will be cleared prior to application.

Even though you have your deposit it is essential that you continue to show repayment capacity pre-application of around €500 per month for every €100,000 you want to borrow”.

This is viewed in conjunction with spending habits, so managing this, or at least keeping it conservative, is important.

While banks expect to see you shopping and going out, they really don’t like to see things like regular gambling, large cash withdrawals or anything that can’t be explained (e.g. if you are servicing say, a Revolut card, or buying cryptocurrency, they will want this evidenced by statements).

If you are servicing loans, that’s fine, but don’t skip repayments (this will show up on your credit reference).

Under the Consumer Protection Code, banks are required to ensure a proposed mortgage is affordable. They will ‘stress test’ this to 2pc above the actual interest rate being offered. Finally, try to avoid withdrawing money from your savings. If you must, evidence why, and what for.

Question

I completed my local property tax form and returned it on time, but now believe I have undervalued our payment. My wife is extremely worried and thinks Revenue will be after us.

I opted for Band 4 but we now believe that it should be Band 5 after discussion with neighbours.

I am newly self-employed and require a tax clearance cert for some State work I do. How will this affect it and is there anything I can do?