With the market at its lowest point for many years, it's difficult to establish the right price for a property. Orna Mulcahyasked agents to nominate homes that represent good value. Simon Carswellsuggests who might buy them, and how the purchase could be financed
FALLING PROPERTY prices may make it appear that there are bargains to be found out there but the tightening on mortgages means that borrowers will be fighting for higher loans.
The credit crunch has forced lenders to seek larger cash deposits and higher borrowing costs from their new mortgage customers.
The maximum mortgage to first-time buyers has been capped at 92 per cent by most lenders and standard variable rates have risen by an average of half a percentage point over the last year as the banks' own funding costs have risen.
However, prices on many houses have reduced substantially to sell and banks are still open to lend mortgages to customers with large lump sums and a strong ability to repay.
AIB, the largest bank in the country, is tough to beat on rates, particularly in straightforward cases such as first-time buyers borrowing within reasonable loan-to-value limits.
However, Frank Conway, director of the broker business, the Irish Mortgage Corporation, says prospective buyers will find their borrowing power becoming "tighter" in complex deals when approaching most lenders.
"The bottom line is that some lenders will do a deal where others would not and their rates will match the risk," he says.
Individual buyers can borrow up to five times' their annual salaries, while couples can borrow up to 5.3 times their combined income, though lenders no longer offer "kickers" in deals where there is the prospective of a guarantee from a parent or where a room will be rented.
The difficulty is that some borrowers may have a large lump sum to buy a property but lenders will still impose very strict conditions to ensure they can repay the mortgage as well.
Karl Deeter, head of operations at Irish Mortgage Brokers, says that about three in every five borrowers are on standard variable rates, which lenders have raised and have greater flexibility to increase given the high cost of funding. "Anybody on a variable rate can save literally thousands by getting a new deal. Lenders have been particularly harsh with variable rate margins for the simple reason that they can."
Here are examples of properties on the market and the best rates available from lenders.
It's worth noting that most lenders offer a discount rate for the first year of a new mortgage but these are not included below.
The examples give a general guide of how much borrowers could receive, but approval managers are likely to apply specific criteria to assess income in each individual case so rates and maximum loan-to-value ratios may vary when you are seeking a mortgage.
THE HOUSE
A COUNTRY house complete with an old mill, outbuildings and river frontage for €625,000 seems to offer good value and plenty of possibility for life changers. Cloggy House (new owners might start by changing the name) is a pretty four-bedroom house with 1.75 acres on the River Erne, 5kms from the village of Ballinagh and 6kms from Cavan.
It's in good condition throughout and decorated cottage-style with lots of exposed beams.
The coachyard has several renovated outbuildings that could be converted into offices, workshops or even holiday cottages.
Agent:Knight Frank
THE BUYER
LET'S SAY a couple in their forties want to buy this house in Co Cavan. The husband earns €110,000 a year and the wife doesn't work.
They have €300,000 for a deposit and plan to use the house as a holiday home initially rather than as a primary residence.
The best mortgage deal on offer at the moment is AIB's tracker rate of 5.6 per cent for investors where the loan is less than 60 per cent of the value of the house.
The bank would offer a term of 15 years on the loan, making monthly repayments €2,672.
The couple would have to pay stamp duty of €35,000, legal costs of between €2,500 and €3,000 and a valuation fee of €127.
THE HOUSE
126 SHELMARTIN Road, Fairview, Dublin 3 is a three-bedroom terraced house in Marino that needs updating.
In the "good days" it would have made €525,000, according to Conor Gallagher of DNG's Fairview office, which has just taken it on its books.
It's an executor sale, so it has to be sold. Needs work, but it's on a nice road where many of the houses have been updated. It has a west-facing back garden which is another plus. It's good value at €385,000 according to Gallagher.
Agent:DNG
THE BUYER
LET'S presume a first-time buyer - an engineer earning €75,000 a year - is eyeing up this three-bedroom house in Fairview, Dublin for €385,000, though the house needs work. He has set aside €35,000 in cash for the deposit so he'd be seeking a mortgage of €350,000. As a first-time buyer he will not have to pay stamp duty on this property and the mortgage comes in at a loan-to-value (LTV) ratio of 90.91 per cent, which is within many lenders' limits.
EBS offers a tracker rate of 5.69 per cent, which would mean monthly repayments of €2,029, though AIB's 5.2 per cent two and three-year fixed rates would leave our borrower repaying €1,921 a month.
The problem with this borrower is that their income is fairly tight. Being a "professional", AIB and Bank of Ireland may approve a higher LTV mortgage.
Karl Deeter, head of operations at Irish Mortgage Brokers, says that given that the property needs work, the buyer could borrow up to €397,000 with First Active.
He said the borrower could get the property valued with a "value in repair" figure where First Active would lend on the contract price value with a retention until the work is completed and provide up to 92 per cent of the final value of the property, subject to a ceiling of €397,000.
THE HOUSE
IN MONKSTOWN, this Victorian terraced house at 5 Vesey Place went on the market in autumn 2007 at €3.85 million, the adjoining house having sold for €4.2 million. A year later, number 5 has been reduced to €2.95 million, and Lisney is looking for offers "in that region".
On a price per square foot basis, this could be considered value. The house has over 353sq m (3,800sq ft), and there is over 93sq m (1,000sq ft) in the original coach-house at the end of the garden. The house needs updating, but has kept most of its original features, including marble fireplaces and plasterwork.
Agent:Lisney
THE BUYER
LET'S SAY our prospective buyer is a 55-year-old businessman who earns €200,000 a year. He has cash of €1 million in the bank that he can use as a deposit. This buyer would therefore be looking to borrow almost €2.2 million.
A mortgage of this scale would equal 11 times his annual income, and no lender would be willing to provide a mortgage on these terms. A bank or building society would really only be willing to provide a maximum mortgage of about €700,000, according to Frank Conway, director of the Irish Mortgage Corporation.
"The problem is that income is too low and the maximum loan term is too short," he says.
If they had an additional €1 million for the deposit and the businessman was earning double (€400,000 a year) what he was currently making, he may secure a tracker mortgage rate of 5.35 per cent from Halifax or 5.4 per cent from AIB on a LTV ratio of 50-75 per cent. But on a mortgage of €1.2 million with a rate of 5.35 per cent over 15 years, the businessman would end up paying Halifax a whopping €9,700 a month.
THE HOUSE
190 UPPER RATHMINES Road is offering a lot of house for the asking price of €1.35 million. It's got seven bedrooms in the 243sq m (2,616sq ft) of living space arranged over three floors. Renovated three years ago, it has kept many of its original features, with some expensive additions such as the Aga.
Located close to the junction with Cowper Road, it's close to the Luas stop. There is enclosed parking at the end of the garden.
Agent:Savills HOK
THE BUYER
A BUY-TO-LET investor might be attracted to this house on Upper Rathmines Road as with seven bedrooms it may make a suitable property that a landlord could rent out.
Let's say an investor already has rental properties worth €7.5 million in a portfolio on which he has borrowings of €5.5 million. He would be willing to put up €500,000 in cash to buy this property and borrow the remainder to make up the purchase price of €1.35 million.
The investor could avail of AIB's tracker rate of 5.75 per cent or the bank's variable rate of 5.7 per cent for investors where the LTV is greater than 60 per cent.
The tracker rate would mean the investor would be repaying €5,253 a month over 25 years.
THE HOUSE
THIS WELL-LOCATED three-bedroom pre-war semi at 44 Farney Park in Sandymount, Dublin 4 has come a long way down in price since it first went on the market in late 2006 at €1.55 million.
It is now for sale through Bennetts at €1.1 million, though the owners are open to offers.
Although it has been updated with a new kitchen, new owners will probably start all over again and extend the 139sq m (1,500sq ft) house to gain an extra bedroom or two.
There's off-street parking at the front, and a 90ft garden facing south-east to the rear.
Agent:Bennetts
THE BUYER
A SECOND-TIME buyer may be attracted to this three-bedroom house in Sandymount, Dublin, which is on the market for €1.1 million, having been reduced from €1.55 million.
Let's say a couple in their mid-30s has a combined income of €175,000 and a lump sum of €300,000 from the sale of their first house, but the sale has not yet been finalised.
The couple would qualify for a mortgage of €964,000 from Halifax which would offer a tracker rate of 5.35 per cent on a LTV ratio of less than 75 per cent.
This would mean that they would have to make monthly repayments of €5,383 over 30 years.
The big issue facing the couple is the stamp duty of €70,250 they will have to pay. This will eat into their €300,000 cash lump sum.
The couple has a bit of wriggle room on the LTV ratio on the mortgage and because they are young they can spread the mortgage over a longer term.
