Making Cents: A mortgage guide for foreign nationals

IN THIS article I want to focus on what foreign nationals can expect to encounter should they wish to purchase a property in Ireland and what they need to be mindful of when applying for a mortgage. 

It can be a difficult and complex process at the best of times and what information I’ve seen available can be confusing and at times conflicting. So I’m hoping this article will be a useful resource and will help guide people in the right direction.

Work Permit

Okay first things first foreign nationals are able to get a mortgage in Ireland, but the caveat is that lenders will only accept applications from those who hold a visa status Stamp 4 or a Stamp 1 critical work permit.

Length of Time in Country

The length of time spent in the country is also a critical determinant in how much a bank is willing to lend because if you are < 2 years in the country a bank will restrict the amount they’ll lend to 80% of the purchase price of a property. However, if you’re living here for > 2 years, you can borrow up to 90%.

Credit Check

And if you are living less than two years in Ireland a bank will insist on carrying out a non-resident bureau check (NRBC) and this will also apply to people regardless of their length of time in the country if they’ve disclosed that they are carrying debt owed outside of Ireland.

Borrowing Capacity

The amount you can borrow from a bank is determined by the Central Bank of Ireland’s limits and they apply to everyone applying for a mortgage.

And for first time buyers the amount you can borrow is four times your gross annual income. So, if you or you and your partner are earning €70,000 per annum you can borrow €280,000.

Banks have been given flexibility by the Central Bank, which allows them to deviate from the 4 x rule by 15% of their total lending in any one year to first time buyers and second/subsequent buyers. 

And they are being given this leeway to cater for individuals whose particular circumstances may give a bank some comfort to exceed the normal limits.

A good reason to exceed the income multiple limits might be when a first-time buyer applicant has demonstrated a clear ability through monthly savings and or the amount they pay in rent each month that they have the capacity to fund a mortgage which is maybe 4.2 times their gross.

Personal Contribution

Okay next up is the amount you have to contribute towards the purchase and for a first time buyer its 10% of the purchase price. So, if a property is costing €300,000 you have to personally contribute €30,000.

Help to Buy Initiatives 

Having said that, now is a good time to mention one initiative put forward by the government in recent years that was aimed specifically at helping to fast track first time buyers getting a foothold on the property market.

And this assistance is available to foreign nationals as well. 

And it’s called the Help To Buy Scheme (HBS) and it has the ability to help first time buyers buy a property costing up to €300,000 without having to have any savings at all. 

FTB’s can claim back the lesser of, (a) €30,000 (b) 10% of the purchase price of a new property (c) 10% of the approved valuation of a self-build property or (d) the amount of income tax and DIRT they paid in the previous four years.

So, if a property was costing €300,000, the mortgage amount would be €270,000 i.e. 90% and the remaining 10% would be funded by the HBS scheme, provided either the single or joint applicants have paid in excess of €30,000 in income/DRT tax in the previous four years, and their annual gross salary was €67,500. 

There is another initiative called the First Home Scheme and rather than going into detail about what it is, I would say you should familiarise yourself with it and with everything that’s available and how they could perhaps be used by you.

Additional Costs

I referred to the amount you have to contribute to the purchase price of a property and it being 10%, but that’s not going to be your only outlay, there will be others and some of them will be:

Solicitor fees - I’d say budget in this instance for circa 1.5% of the purchase price but shop around and ask a number of solicitors how much each will charge.

Conveyancing fees - these are separate to what a solicitor charges for their time, they are a fixed cost that you have to pay to have the property registered with the land registry registration of your mortgage etc.

A structural survey - this is not mandatory and really only applies if you are buying a second hand property. What you are doing here is getting an engineer to check out the property for any structural defects that may not appear apparent to you but they would to them. The cost here might be in the region of €300 to €500. And it might be money very well spent particularly if they draw your attention to work that may need to be done that could cost thousands. Being forewarned of what this future cost could be might even influence you from continuing with the purchase.

A valuation fee - this is mandatory and required by the bank to make sure the property is equal to or greater than what you’re paying for it. The cost is about €150.

Documents Required for Mortgage Application

Okay when you’re applying for a mortgage you have to present a number of documents to your lender and an example of what they are, are as follows:

A salary certificate - this is a templated form given to you by the bank and it will be completed by your employer. It will show your annual earnings, start date, any bonus or commission payments which are a feature of your job etc.

Three recent payslips 

Confirmation of what your income was for the previous two years – this is available online via Revenue’s myAccount service and you are looking for your employment detail summary

Savings statements – 6 months but they may ask for 12 if your account is held with a bank you are not making the application with

Loan account statements – as above

Current account statements – as above

Photo and address ID

Stamp 1 or 4 work permit

Repayment Options

And once you are approved for a mortgage and you have identified a property and you have moved forward with getting a valuation carried out, next comes your letter of approval. 

And on this will be the address of the property, the conditions of the mortgage approval that you have to satisfy (arrange life cover, get the property insured etc) the amount you are borrowing, the term of the mortgage etc and one very important area is what type of mortgage you are proceeding ahead with.

And your choice in this instance will be between a variable or a fixed rate mortgage.

If you choose a variable rate, the monthly repayments could rise or fall and if you choose a fixed rate they will remain fixed for your chosen period. So, if you choose a five year fixed rate, you have certainty over what your next 60 monthly repayments will be. And this route is the one most favoured by first time buyers simply because of the certainty it gives them and it’s easier to budget and manage their finances each month. 

And here’s an option that many people don’t realise is available to them and that’s opting for a mortgage that’s part variable and part fixed. So, you could lock 85% of your mortgage into say a five year fixed rate with the other 15% on a variable rate.

And why would you do this?

Perhaps you think rates will fall and if they did the variable portion of your mortgage would fall. Or maybe you want to overpay your mortgage each month and if everything is on a fixed rate your lender may restrict the amount you can overpay, whereas if you have a variable portion you’re not limited to the amount you can overpay. 

And it’s important to say that the variable and fixed rates available to Irish residents are available to foreign nationals who satisfy the criteria I referred to at the beginning of this article. 

That’s about it. I hope those I’ve written this article for have found it useful. 

And I’d say when applying for a mortgage, I’d consider getting the help of a mortgage broker, someone who’s been down this road many times with others who were once in your position. 

Their help and insights could be invaluable to you. But don’t be afraid to speak directly with a bank yourself either, they too have super advisers who will guide you at each stage of the house buying and mortgage application process.

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