By Brian McCormack, Sherry Fitzgerald Financial Services
Over the last decade the Irish mortgage market has seen significant change. Household names such as Ulster Bank and KBC closed their doors and have been replaced by a raft of new entrants such as Avant money, Moco and most recently Nua money. The pillar institutions such as Bank of Ireland, AIB and PTSB have remained and we now see a battle between the old methods and the new way of lending. While all this change and increased competition is great for the consumer it also comes with some drawbacks. The main issue with all this choice is for both first time buyers, movers and switchers alike, customers are now inundated with options, which does not sound like a bad thing but begs the question, where do I start?
The simple answer to this is to seek advice. Much like anyone who has ever tried to climb Mount Everest, they have not done so without the help and guidance of a good Sherpa. While this might seem like a rather dramatic comparison, the simple fact is that a mortgage for most people is the single biggest loan a person or couple will have in their lifetime. It then stands to reason that if you are taking on such a significant life event, that you give yourself the best chance of success by getting advice from a mortgage broker who deals with all these lenders both old and new on a weekly basis.
Before even making an attempt at an ascent up the mountain, lenders will look for potential borrowers to have at least a 10 per cent deposit available for a future purchase. This deposit can be made up of savings, a gift or if you are in the market for a new build home, the government backed initiatives such as the Help to Buy or First Home scheme. I have had clients in the past who used a blend of all the aforementioned to make up their balance of funds. There are conditions attached to the use of Help to Buy and/or First Home Scheme, so even for this small part of puzzle alone it is worth seeking out advice from a mortgage broker.
When setting off from base camp to apply for mortgage approval there are three core calculations that most lenders will look at, affordability, repayment ability and net disposable income. Affordability is based on an applicant's gross annual salary, if you are a joint applicant then it is the combined gross income that is taken into account. This will determine how much you are likely to be able to borrow. However, there is nuance to this calculation particularly when applicants have any form of variable income to include, i.e. annual bonus or regular overtime/commission. Each lender has their own subset of rules when factoring in just how much of this variable income they are willing to allow. To add further complexity, if you are a public sector employee on a pay scale there are certain lenders who will consider using the next increment up (sometimes two increments up ) on the pay scale to determine affordability. Once this cliff edge is negotiated then proving that a mortgage can be repaid on time is the next peak. Again, there is now a fork in the trail on how lenders require this to be proven, for some it needs to be 100 per cent of the monthly mortgage repayment, for others it only needs to be 75 per cent as long as there is enough disposable income to make up the shortfall. The net disposable income calculation is designed to ensure that applicants are not spending all their take home pay after tax on servicing debts. This is where personal loans, car loans and PCP agreements are factored into the overall approval decision.
If you do manage to negotiate the rocky terrain of affordability calculations there is then a blizzard of interest rate options, cashback incentives and overpayment considerations to be made. The higher up the mountain you go on this journey the easier it is to completely lose your bearings. Most lenders will offer low fixed interest rates based on a properties BER rating; these are packaged as green rate mortgages. If the BER rating of the property is B3 or better than the fixed interest rate offers tend to be the most attractive on paper, with flagship rates such as a 3.10 per cent on a four-year fixed rate available at the time of writing. Rate alone should not be the only factor in the decision-making process however, as I have had many clients who benefited from selecting interest rates where cashback incentives were an option. These tend to be slightly higher than the green rate options but when you crunch the numbers there can be significant gains depending on the size of mortgage and amount of cashback on offer. When reviewing a recent approval for a client I found a difference in up to €5,000 in net gain if they were to select a different interest rate option compared to what they originally had thought was best.
Depending on your outlook the mortgage process can appear relatively straight forward or it can feel utterly terrifying, the hardest part of any journey, whether it is up the mountain or on to the property ladder, is taking that first step. Before you do, make the journey a little easier on yourself and go find a good Sherpa.
