Are you trying to save in the hope of
securing a mortgage - but confused about what lies ahead?
In the year to date, mortgage
approvals for first-time buyers are up 43pc year-on-year, but this doesn't mean
it's an easy process.
Independent.ie spoke to the experts about what
first-time buyers should be looking for:
What is the main thing to note when
you’re shopping for a mortgage?
Managing Director at Bluewater
Financial Planning Steven Barrett said the first thing a first-time buyer
should look at is the interest rate that lenders are offering.
"It is so hard to get a mortgage these days,
there are no myths really, it is actually a very difficult process,"
Steven told Independent.ie.
"The interest rate is the big
thing to look out for, how much you’re going to repay.
"First-time buyers tend to look for the longer
term which is better so you can borrow more money to get started. If you’re
looking for the longest term, you’re looking to keep down repayments.
"This is new for people to hear,
they’re not taught these things about finance or mortgages in school or
college."
Independent financial advisor with 52Financial Ross
Connolly said he would advise speaking to a mortgage broker.
"Obviously I'm biased but the
benefits of having a broker are; we do the shopping around for the client, we
build a file which would be neutral and throughout the process we think of
which bank we think would be most suitable for the client," he said.
What are the red flags banks look for
when you’re applying for a mortgage?
"Overdrafts that are not organised or arranged
with any bank are also a big no-no," Ross Connolly said.
"We stay away from overdrafts.
You don't want to paint a picture of someone who is living from pay cheque to
pay cheque. You don't want to be seen to be gambling or any excessive spending.
We would cut that down. The accounts need to be clean."
He said that they advise customers to do an Irish
Credit Bureau check on themselves online at www.icb.ie to make sure they
haven't missed any old credit card bills or supermarket clubcards they didn't
realise they had signed up for.
"The aim is to catch any missed
payments at all," Ross added, "just so you have any questions
answered before the bank has to ask them."
Steven Barrett of Bluewater Financial Planning said
the first thing a bank will do is look at someone's credit rating.
“I’d always advise people to get a
copy of their own records so they know what they have, it is the first thing a
bank will do," he said.
"My advice to first-time buyers is to make
sure the minimum credit card payments are paid off each month because that will
affect your credit card rating and make it more difficult to get a loan.
“Missed payments on your direct debts are a big
no-no as well. Banks do go through statements line by line. These days, people
do spend a lot with their debit card, so your whole lifestyle is showing up on
bank statements. If you miss payments, the bank will say, ‘well this person
isn’t paying their bills and it is a red flag’.
“You can get declined for repeated
missed payments,” Steven added.
What if I have savings or debt in
other accounts, like a Credit Union account?
There is no problem having savings in a different
account, you can bank and save whatever and wherever you want, mortgage
specialist with Mortgage Negotiators Shane Connole advised.
"You can bank and save wherever you want, and
you can walk in to get a mortgage wherever you want. Just because you bank with
Bank of Ireland doesn't mean you can't shop for a mortgage with KBC," he
said.
"The debt on the other hand, you
can have your loans wherever you want but this may have a negative impact on
your loan approval.
"The debt will absolutely contribute to your
credit rating, but it can also have an effect on how much you're
borrowing."
Is it true online gambling accounts
are a 'no-no' when applying for a mortgage?
The short answer is yes. Steven Barrett of
Bluewater Financial Planning describes online betting accounts as a “big
no-no”.
“It’s a big no-no if you’re using
Paddy Power and other gambling websites on a regular basis.
“When people gamble regularly, they tend to leave
the money in the online account if they win and this only goes one way. If they
can see that you’re a regular gambler, they will refuse a loan.”
If I’m renting, will the bank take it
into consideration for a credit rating?
Banks will take your monthly spend on rent into
account for your repayment capacity, Ross Connolly advised.
"When it comes to the savings
aspect, the repayment capacity would be the correct label to put on it.
"A couple paying €1,000 a month in rent need
to know that this €1,000 will go towards their repayment capacity for a €1,200
a month mortgage, it will be considered savings for want of a better word.
"If you can get a car loan cleared coming up
to the application, this can also be considered as repayment capacity."
Can I get a financial gift from a
relative?
Mortgage specialist with Mortgage
Negotiators Shane Connole said the simple answer is "yes".
"There are no rules around it," he said,
"but there are areas to watch out for. No bank likes approving mortgages
where your own contribution is a 100pc gift. They would expect for a 10pc
deposit, that 5pc of the money is your own savings and the other 5pc could be
your gift. An example, you're buying a house for €200,000 and need a €20,000 deposit.
You will need to show that €10,000 of that is from your own funds."
The second aspect of receiving a gift is to watch
out for tax, Shane Connole advised.
"It's better to receive the gift
from a relative in a direct bloodline, based on the tax position. If you're
getting a gift from an aunt or cousin, the bank will want to know how you will
pay the tax and revenue on it.
"Finally, the bank will want to see the gift
money in your own account at a certain stage of the process."
Are there any myths or misconceptions
you've come across?
"I wouldn't come across a lot of
misunderstandings," 52Financial's Ross Connolly said, "but some
people don't understand the reason behind the saving.
"The main reason to save is so you can prove
you have the repayment capacity when it comes to your mortgage.
"If your mortgage repayment is
€1,000 a month, they may look for €1,200 in repayment capacity in case there is
an increase in interest rates.
"People nowadays do seem to be more educated
about applying for amortgage.
"It is rare that I come across an online
betting shop in a bank statement. There is a high level of advice out
there," he added.
If I'm buying a doer-upper, can I get
any special treatment?
There are a few things to note if you're investing
in a doer-upper, mortgage specialist Shane Connole said.
"The key areas are; do you need
planning permission, you need invoices for the work you're doing to the
property, and you need to ensure the loan you're applying for does not exceed
90pc of the total end value of the property.
"If you buy a house for €200,000 and do
€50,000 worth of work, this does not mean the end value of the house if
€250,000.
"The rule is it's 60pc of the value of works.
So if I buy for €200,000 and I do €50,000 worth of work, the end value of the
house would be €230,000.
"A lot of people fall flat on that. Banks
cannot lend more than 90pc of the value per completion.
"You will also need invoices and typically you
need a registered builder's invoice."
Shane added that there is not a 'scheme' asuch in
place for those buying doer-uppers, but you can receive the money in stages.
"You get the first part of the loan paid down
when buying the house, and then your value of works is split into two payments.
You receive one payment when half the work is done on showing an invoice, and
you receive the second payment when the works are completed."
So, you’ve saved for your deposit –
are there any hidden costs?
As well as your deposit, financial experts advise
that you have the money aside to pay for the extra costs which include stamp
duty, solicitors’ fees and surveying fees.
“First-time buyers will have to have a 10pc deposit
saved, but you will also need to show that you can pay for the associated
costs,” Steven Barrett said.
“You could be paying up to €2,000 for a solicitor,
and when it comes to conveyancing, it does need to be done properly by a
qualified solicitor. Cheapest is not always best.
“You are talking another few hundred euro for a
surveyor, and you have to be able to show the bank that you have that in
addition to your deposit.”
Any expert tips for the first-time
buyer?
Bluewater’s Steven Barrett believes a separate
savings account is key to securing a mortgage.
“Having regular savings each month is a big plus,
having an account where regular money goes in and you don’t touch it,” Steven
said.
“If you’re putting in a thousand euro on a regular
basis but then taking money out of it, they’ll just say, ‘well, this person
isn’t really saving’, even if it’s just every quarter, they’ll discount it or
they’ll average it out.”
He continued; “Regular saving is the key. If
mortgage rates go up by 2pc you need to show you can afford the higher
repayments. If you’re paying rent, you need to show that you’re also regular
saving in an account you don’t touch.
“You need to have control over your
finances and try not to have any debt.”
Sunday Independent 10th September 2017
