Continuing, on from last week’s post, as promised the other four other areas I want to talk about when it comes to making a mortgage application are:
As a FTB, your minimum requirement is 10% of the purchase price and again they have some discretion to deviate from the Central Bank guidelines. But again, I would assume you have to show any lender you have the 10% at your disposal.
And what they’d like to see in this regard is a gradual build-up of savings over time.
The average purchase price of a property in Ireland is €269,522 which means if the property you’re buying costs that amount, you need to save €26,952. And the math is fairly simple when it comes to saving this amount in the time period you set yourself.
If you want to be ready in 2023, then you need to save €1,123 every month. In fact, you need to save a little more because when you apply that stress test repayment I spoke about last week, if you borrow 90% of €269,522, your monthly repayments at 6% will amount to €1,383, so you’ll need to dial up the savings to that amount each month, and if you do, you’re practically guaranteeing your chances of approval and you’re fast forwarding your purchase by 5 months’ in the process.
So, review your outgoings and if you can, and this of course will depend on your circumstances, adjust your spending around the amount you need to save rather than adjusting the amount you can save around your spending.
If you’re serious about buying, the first thing that comes from your income is the amount you know you need to save each month. And you have, to fit your lifestyle around the amount that’s left over. And that might mean fewer nights out, less clothes bought or whatever it is, and yes sacrifice’s, have, to be made, but that’s okay because if you don’t, you know you’re going to end up renting or living with your parents in perpetuity.
I’d recommend setting up a standing order for the amount you can and need to save each month, and have it lodged into a dedicated mortgage deposit account. And have the money put into an account that isn’t readily accessible or can’t be dipped into too easily. And in normal times, you’d feel the pain immediately but if you’re living at home and with the lockdown in place, this is money that even if you wanted to spend it, you can’t, so take advantage of it.
One last point when it comes to your deposit – don’t let the 10% number be your only benchmark to measure progress against.
The bigger deposit you have, the lower your monthly repayments will be, and the better your interest rate might become. And I appreciate getting to 10% is a very big ask in itself, but when you reach it, don’t let it be the trigger that makes you buy a property either. Unless a property you absolutely love comes to market and, it fits into your price range, don’t buy it. Don’t settle for any ole house. If, it takes longer than normal to find it, that’s fine as well, and in the meantime, just keep saving.
And don’t forget to have a contingency fund in place either after you have bought a property. As good as it is to have as big a deposit as possible, you don’t want to exhaust all of your savings after you buy either, and my reasons for saying that are twofold: (a) you may need money to carry out renovations to the property, and even if you didn’t, you may need new furniture, or you may want funds for new decorations etc. and (b) you should have funds in place, that you can call upon in the event of you losing your job, or your income was reduced.
On that last point and without wanting to be too alarmist, think about what would happen if you lost your job a month after buying a property - would you have enough funds in place until you secured new employment and income? Having that reserve in place is the right thing to do, and I would prefer you have it over having a bigger deposit. So, maybe keep back 5- or 6-months’ mortgage repayments from your savings and factor them into the amount you need to save towards the purchase as well.
Permanency of employment
Banks want to lend to people who are in full time, permanent employment who have completed their probationary period. And this is very important, because they want to see an income from borrowers, which is likely to continue into the foreseeable future.
They look really favourably on applicants who have been with their current employer for at least 2 years. It’s not essential or a must, but a good employer and a stable work history, does give them comfort. So, if you are thinking of switching jobs and buying a property, then maybe think again until you have got your mortgage in place, and a property bought.
If you move jobs, even to one where your income is higher, you’ll probably still have to go through a probationary period which could last 6 or 12 months which could delay your house purchase.
Maintain good accounts
Banks will forensically go through your current accounts, line by line.
If you are constantly in your overdraft each month, or you have nothing left over, or you have referral fees being applied, they are big red flags and your chances of securing a mortgage, regardless of how much income or savings you have, are greatly reduced.
A bank will ask for at least 6 months current account statements (the account your salary is lodged into) so present them with statements where there is, a consistent credit balance at, all times.
Know your credit rating
Any lender will do a credit check on you and will do so with the Irish Credit Bureau (ICB). They want to see the person they lend to have a good repayment history, if, they have any existing or previous loans, and the ICB report they’ll receive, will show them just that.
So, before you make an application, why not carry out a credit check on yourself?
You can apply to the ICB yourself (www.icb.ie) at a cost of €6 and within a matter of days they will send you the same report any lender will receive. You are doing this to make sure, what’s recorded, on the bureau is correct, and if it isn’t, you need to start making the changes before you submit an application, or, if there is a record showing missed repayments, you can explain why they occurred.
There’s no doubt, buying your first home and getting mortgage ready can seem daunting. There is so much to think about and consider, and if it’s something you feel challenged by, don’t be afraid to reach out for help either. If, for example you find speaking with bank officials daunting, then seek out the help of an expert who can speak with lenders on your behalf, so you don’t have to go it alone either.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at email@example.com or harmonics.ie