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| | | | | Press Section | | | | Money Talks, Gareth Naughton - How to get a mortgage |
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| | | | March 7, 2010 Mortgage lending last year was down 58% on 2008. But if you are taking the home loan plunge, here are some tips.
Fewer than 46,000 mortgages were drawn down in 2009, a fall of more than 58% from the previous year. More mortgages were drawn down in the fourth quarter of 2006 alone.
Some of this decline is down to home-buyers' reluctance to take the plunge, having watched hundreds of thousands of people get stung by negative equity. However, it is also due in no small part to the extreme reluctance of the lenders to give out money.
There are only three serious players in the market for first-time buyers at the moment – Bank of Ireland, AIB and EBS with mortgages available with loan to value ratios of 92% – and even they are being extremely cautious when considering an application.
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| | | In fairness to the lenders, they are merely applying the criteria required to qualify for a mortgage; the turmoil of the past two years has amply demonstrated that this kind of sensible lending should have been taking place all along. However, with lenders reluctant to give out money, anyone looking for a mortgage needs to make sure their application is squeaky-clean if they stand any chance of getting approval.
Part of the problem is that many applicants do not understand what an application entails, says Kevin McNerney of the Mortgage Finance Company.
"The fact that a huge proportion of mortgage applications are being rejected is due, in the main, to the applicants not understanding the requirements that each individual lender puts on their lending criteria. While many lenders are insistent that it's 'business as usual', this is simply not the case. All lenders have tightened their lending criteria enormously and prospective mortgage applicants need to be aware of the main areas that banks will look at when it comes to their applications," he says.
Employment: This is becoming one of the most troublesome criteria for borrowers. Lenders have narrowed it down massively so that only people with permanent employment for a reasonable period of time are in a position to borrow. If you lost your job but found another, you are going to have to wait a while before they will even consider your application.
Additionally, the continuing uncertainty in the economy means that some professions are finding it more difficult than others, despite the permanency of their positions, says Ciaran Phelan, chief executive of the Irish Brokers Association.
"Criteria for lending approval have tightened, particularly when it comes to employment and salary. Only candidates in permanent employment are considered; contract income does not qualify; no probation situations will be accepted, regardless of the strength of the applicant, and those in longer-term employment are preferred by most lenders. There is very little recognition given to overtime, bonus or commission income. That, in particular, is having a significant impact. Unfortunately, certain sectors of employment are almost completely excluded – property-related incomes, builders and architects are all experiencing above-average difficulty in trying to secure a mortgage and retail sectors are also being examined very closely," he says.
Savings: Lenders are no longer willing to turn a blind eye to where your deposit came from – the days when parents could give their children five-figure sums to help them onto the property ladder are gone. If you suddenly have a lump sum in your account that covers your deposit, the lender is going to want to know where it came from.
If you want to get a mortgage now, you are going to have to demonstrate that you have the ability to save regularly. For anyone saving their deposit over a long period, this shouldn't be a problem. This is a major issue among lenders, says Frank Conway, director of the Irish Mortgage Corporation.
"They absolutely want to see a history of savings. It is a proxy for repaying a mortgage so they want to see that an individual has proven that they have stuck to a constant savings plan over a set period. Equally, I would say to anyone who pays rent to keep accurate records of their rent payments as banks will take this in to account," he says.
Keeping your accounts in order is very important. If you have been living on your overdraft, lenders will consider that a sign that you are unable to manage your affairs and it will be a black mark on your application.
Location: Where you live is no longer important only to you. During the boom, lenders were all too eager to give money to first-time buyers who were so desperate to get onto the property ladder that they were willing to pay well over the odds for a badly-designed apartment in a random commuter town. With the market for such apartments now essentially non-existent, lenders are beginning to pay more attention to the location and saleability of your proposed new home.
"What banks want to avoid is lending in areas where there may be an over-concentration of investment properties, such as section 23 developments. The major lenders such as AIB, Bank of Ireland and EBS have not made a distinction between apartments and houses but others have, and very early on indicated their move away from lending on apartments in certain areas. There is also some lack of appetite for some rural property types; site costs for self-builds are not high on the agenda for lenders and they will always look at the resale value of a property now before they lend. Lenders are much more keen to lend in urban areas with better prospects for good resale potential," says Conway.
Credit Record: Your financial activities in the run-up to your application are an important indicator of your ability to repay your loan. With money tight over the past year or so, many people will have been tempted to forgo the odd credit card payment and take the hit, but doing so pretty much ends any chance of making a successful application. All lenders will check with the Irish Credit Bureau to see if an applicant has missed any of their repayments and any delinquencies on the credit report will lead to a refusal. You can check your personal credit report by requesting a copy from the Irish Credit Bureau. If you spot any errors in it, you can contact the creditor and ask them to ensure they are corrected. | | | | |
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