I am based in the UK but have been trying to buy a property back in Dublin. Having identified a property, I have spent the past two months going through the mortgage process with an Irish bank.
Last week I finally got a call to say I had been approved for the mortgage and the deal could go ahead. Literally two minutes later, I received a second call to say that the Central Bank would not allow the mortgage approval and there was nothing they could do for me.
I just don't understand what happened. How could I have a mortgage approval one minute and a flat rejection a couple of minutes later. I have provided every bit of paperwork required by the bank over the past two months. I am in a good full-time job and have managed to save a lot towards the price of this purchase. I now risk losing out on the deal entirely as I will have to start again from scratch – and as I don't know what happened, I have no guarantee it won't happen again. Is there anything I can do?
Mr F McG, London
You have found yourself in a deeply unfortunate position and possibly the most frustrating thing is that you’re not even sure what happened.
Cross-border mortgages – especially across different currency areas – are always somewhat more complicated given the innate conservatism of banks generally. Anything out of the ordinary startles them and their instinctive reaction is to pull in their horns.
However, in this case, as I understand it, the bank was open to the prospect of you buying here, albeit they keep coming back to you for further paperwork. As anyone who has tried to secure a mortgage in Ireland recently will attest, the documentary requirements of lenders are onerous.
The bottom line for you, however, is that at the end of the process, you were approved. The bank contacted you to say it had approved the loan.
Inexplicably, they came back to you a few minutes later to flatly reject your application, blaming the Central Bank. So what happened?
We’re still trying to unravel things with the individual lender which is why I have not named them here.
The mention of the Central Bank – assuming that is really who has thrown a spanner in the works – suggests the problem is one of two things. Either the approval fell foul of rules on mortgage lending set down last year, or it ran into problems with a new EU mortgage credit directive that was transposed into Irish law late last month – having missed an EU deadline.
Starting with the Central Bank mortgage lending rules. These were put in place last year t prevent any prospect of a bubble recurring. Essentially, they place limits on the multiple of earnings that can be lent. They also insist on certain minimum deposit thresholds.
In the case of buy-to-lets – and here I am assuming this property will be an investment property (at least under Revenue rules) as you are living and working in London – the Central Bank requires a deposit of 30 per cent of the value of the property.
You say you have put together substantial savings towards this purchase so I am assuming you meet this requirement. If not, I have no idea why the bank would not have raised a red flag at a much earlier stage as these rules have been in place for over a year.
Assuming, therefore, it is not a problem with deposits, the only other recent change in mortgage rules is this new mortgage credit directive. Ironically, it was designed in part to ease the provision of mortgages across national boundaries, though I’m sure you’re hardly in a position to see the funny side of that.
The Department of Finance states that: “The objective of the Mortgage Credit Directive is to provide for a more harmonised mortgage credit market which contains a high level of consumer protection.”
The one area I can see that would impinge on you is a measure relating to foreign currency mortgages. This affects people living across national boundaries – especially where different currencies come into play. For Ireland, during negotiations on the directive, it was seen as potentially causing headaches for people looking to borrow across the Border between North and South where they worked and were paid one side but were looking to buy on the other. Except for the geography, your case is the same.
I’m given to understand from people in the banking sector, however, that the biggest issue even here was that a few more boxes might need to be ticked.
The prospect that some smaller lenders – for whom cross-border mortgage business is very much an insignificant niche element of their business – would pull out of this type of lending was an initial fear ahead of the directive coming into force but I am told this is not now seen as a concern. However, there is conflicting information on this.
All the banks to which I spoke say that they are open to lending to people in your position. The bank involved in your case has yet to come back to me on that and other issues.
So what now? First up, the bank with whom you have been working these past few months owes you a clear explanation. They offered the mortgage and you are entitled to something better than a vague passing of the buck to the Central Bank for a subsequent U-turn.
Having said that, you can’t hang around waiting. Any seller is not going to wait for ever and I would strongly suggest you get in touch with one of the other banks as soon as possible. As I say, they all tell me they are in the business of providing cross-border mortgages. Hopefully, having gone through the entire process once already, you have all the paperwork required and an application can be fast-tracked. Certainly, some lenders are not backwards in advertising how quickly they can make a decision.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
