Making Cents - How to get mortgage approved in 2025

AT THE beginning of every year, I like to write a piece about getting prepared to buy a house and applying for a mortgage.

The value of mortgage approvals has increased by about 12% year on year with first time buyers (FTBs) leading the charge with them accounting for nearly six out of every ten approvals. And the average mortgage value for a FTB is now just over €300,000.

And I know that at the top of many people’s wish lists this year, particularly first-time buyers, is getting on the property ladder and buying their very own home.

So if this is the year you’re going to make an application for mortgage approval or perhaps this is the year you’re going to start saving towards buying a property, I want to tell you what you need to do and how you can put your best foot forward so that whenever an application is made and whoever it’s with, it will be approved.

So, I’m going to outline the first two areas you need to be cognisant with the four others to follow next week.

Know how much you can borrow. Based on current Central Bank regulations, any lender will give FTB’s 4 times their gross annual income or their combined income if buying with a partner or friend.

They have scope to increase this by 15% of their new loan to FTB’s, so they might increase the multiple but I wouldn’t count on it and I’d work off the assumption that you’re going to be approved based on 4 time’s your income.

The 4 times multiple is a quick and easy calculation but don’t assume that that’s it and that’s the amount you’re guaranteed to secure because it isn’t.

Lenders will carry out two tests to ensure the 4 times rule stands up, and the first is working out what that multiple will amount to each month and have you demonstrated an ability past and present to repay that amount.

Let’s assume you’re 30, and you’re buying in your own name, and you earn €60,000. A bank is likely to tell you, you can borrow €240,000 (€60,000 x 4)

Now they’re going to look at what the monthly cost of that €240,000 is and they’re not going to do it at current interest rates. No, they’re going to stress test the repayment to absolutely see you have the ability to repay just in case interest rates increase and they’ll typically do this by working out what the monthly repayment is, based on their variable rate plus 2%.

If their variable rate is 3.75%, they’ll add on 2% and work out what the monthly repayments are based on a repayment rate of 5.75%. So, they’ll work out what €240,000 is over 35 years’, at 5.75%.
And the monthly repayment in this instance is €1,400.

Now, they’ll want to see from the documents you’ve submitted that you can demonstrate that over the past 6/12 months’ you have been saving or paying rent or a combination of both, in excess or equal to this €1,400.

And before I continue there is a way to avoid this high stress rate and that’s if you were to choose a fixed rate for five years or more.

The Central Bank who insist banks carry out these stress tests, allow banks to stress test at prevailing fixed rates as long as the fixed rate duration is greater than five years. Which makes it easier for applicants because rather than stress testing a mortgage at 5.75%, it could be based on a rate as low as 3.2% and that makes a big difference.

The difference for example on a loan amount of €240,000 is showing an ability to repay €1,400 at 5.75% or €1,038 at 3.2%.

And it doesn’t matter to any bank if your income multiple shows you can borrow €500,000 or even more if you can’t prove and demonstrate that you can meet any future stress tested monthly repayment. That’s the key for any bank and it gives them the comfort they’re looking for.

So, don’t make any application unless you can show them your new monthly repayment won’t be a shock to the system because it’s an amount you’re currently paying via savings, rent etc.

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They will further valid the amount they’ll lend to you, by looking at what amount is left over after you’ve made the monthly mortgage repayment and this is where existing loan commitments can impact an application.

You may have ticked the box on the income multiple and you’ve ticked the box on showing you can meet the stress tested monthly repayment, the next box you need to tick is the amount remaining after your mortgage repayment.

Banks don’t want you to be held hostage to your mortgage repayment. They want you to have a life and they have minimum amounts they look to, to ensure that will be the case.

In the case of single applicants they want to see that after mortgage repayments are made, and other cost of living expenses are accounted for, the amount left over each month is about €1,400. I’d say check this number as it can vary from bank to bank so find out what the minimum amount each are looking. A mortgage broker will be able to tell you this as well if you are using one.

And for couples the amount is about c.€2,300 (again double check this amount with the lender you are applying to) and if you have a dependent child, they will increase that amount by a further €250.

It means that you may have to get rid of or at least lower any monthly repayment you have on existing debt to ensure you fit into having the amount banks want you to have left over. So, run the numbers to make sure you do and it could look something like this.

Parameters: Age 35, Gross Annual Income €60,000, Net monthly income of €3,750, current savings rate is €1,500, seeking loan approval in the amount of €240,000, Credit Union Loan of €350 per month and no dependents.

Test 1 (Income Multiple): 4 x €60,000 = €240,000.

Test 2 (Proven repayment ability): €240,000 x 5.75% at 30 years = €1,400, current savings rate = €1,500 and excess €100.

Test 3 (Income Post Mortgage Repayment & Living Expenses): €3,750 – (€1,400 + €350) = €2,000 and minimum required €1,400.

These are the three tests you have to pass to get approval and they’re the first things banks will look at and they’ll then move on and look at other areas which brings me to:

Savings: 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 median purchase price of a property in Ireland for a FTB is €360,000 which means if the property you’re buying costs that amount, you need to save €36,000. 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 2027, then you need to save €1,500 every month. In fact, you need to save a little more because when you apply that stress test repayment I spoke about, if you borrow 90% of €360,000 i.e. €324,000 your monthly repayments at 5.75% will amount to €1,891, 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.

And of course there are schemes that will help also you accumulate the deposit required i.e. the help to buy scheme and the first time scheme. I’ve written about both many times so it’s worth checking out both to see if you qualify and can avail of one or both of them.

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.

Okay, that’s about it, next week I’ll follow up and review the four other areas you need to be aware of.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie