House rules: how to get your first mortgage

It has never been easy being a first-time buyer but it has rarely been harder than it is today.

Banks that 10 years ago were throwing stupid sums of money at anyone who walked through their doors are now tighter than a hipster's trousers, while a Central Bank that once ignored the banks' insane lending policies are now policing them with Stasi-like rigour.

Developers who once seemed happy to throw up all sorts of houses in all sorts of ridiculous locations if they got the merest scent of a potential buyer are now sitting on banks of land and refusing to do anything that might help alleviate a supply crisis which has seen prices spiral out of the reach of all but the most perfect mortgage applicant.

On top of that, renting a modest two-up two-down within walking distance of an urban centre can now cost close to €2,000 and that is rising by more than 10 per cent each year, so saving for a deposit is harder than it has ever been.

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But the story doesn’t stop there.

The luckiest people were those able to buy in the mid-1990s, just before the last property bubble started to inflate

Figures from Eurostat tell us Ireland is the most expensive place in the euro zone to live and while if you have the temerity to have a child and need to pay for childcare – which of course you will because if you are to get a mortgage you will need two incomes to do it – then you can say goodbye to another grand every month.

Blind luck

And as if all that wasn’t bad enough, the poor would-be first-time buyer has to listen to patronising people who own their own homes bleat on about how things were tough in their day too, and fiscal responsibility and living within your means and avoiding avocado toast – as if homeowners have a monopoly on financial wisdom.

The reality is most of those who find themselves owning a home which is not mired in negative equity or mortgage arrears are not wise. They just got lucky because, ultimately, where anyone finds themselves on the property ladder is more often down to blind luck rather than any great financial acumen.

The luckiest people were those able to buy in the mid-1990s, just before the last property bubble started to inflate. Others were fortunate to be in a position to buy their first home in 2002 and 2003 when tracker mortgages were becoming a thing and banks, drunk on cocktails made of fools’ gold, were literally throwing money at people.

They were even offering mortgages of more than 100 per cent to people who were no more in a position to buy a €400,000 house than a four-year-old child.

Other fortunates include folk with a bit of cash or parents who were willing to back them in 2012 and 2013 when property prices were at rock bottom.

The misfortunates are those who bought five years earlier. They were completely screwed – by the banks and by the State.

But the buyers of today have it harder still and the market is an unforgiving place for this cohort, with prices spiralling, rent soaring, supply dwindling and credit in very short supply.

Anxious not to be seen to do nothing, the Government has tried to come to the aid of first-timers and its help-to-buy scheme gives a tax rebate of 5 per cent of the purchase price on a property to that cohort.

While that can help close the gap between savings and a deposit, it still leaves the hill people must climb very high indeed.

Living expenses

In fact, a recent – incredibly depressing – report in this newspaper suggested it could take the average worker currently renting a home in Dublin more than 20 years to save enough to buy an average house.

The research from Prosperous Financial found that someone in the capital earning the average wage of €36,919 a year is left with €127.24 to put aside for a home each month once they have covered rent of €1,500 and modest living expenses. So at best they can save about €1,500 a year while property prices are climbing by about €30,000 each year.

Another recently published report – from the Banking & Payments Federation of Ireland – said the average first-time buyer is now on an income of €67,500 compared to €60,000 at the start of 2015.

Dublin buyers who needed to earn €70,000 in early 2015 needed €80,000 at the end of 2017. Given the Central Bank rules, an income of €80,000 translates to a purchase price of €222,222, based on an income multiple of 3.5 times and a deposit of 10 per cent.

Despite the tough times first timers find themselves living in, life goes on and many want to buy. It is hard to blame them when you consider that a mortgage is – in many cases – substantially cheaper than rent.

Karl Deeter is a financial adviser and analyst with Irish Mortgage Brokers and Advisors.ie and he offers three simple pieces of advice. "Due to the rules on lending, make sure you are realistic about what you can borrow," he says.

Any would-be first time buyer will know the rules off by heart but to avoid any doubt, the Central Bank caps the amounts banks can lend to 90 per cent of the value of a home and 3.5 times income. Above those limits, borrowers will need an “exception”.

You might only get one bite at the cherry with a lender so it's crucial you put your best foot forward

“Find a way to show you can pay the loan – proven repayment capacity is really important,” Deeter says. “If you want an exception, give the lender a reason to want to offer it to you rather than somebody else because they aren’t endless and some lenders are already stopping them for 2018.”

He says things which help demonstrate a borrower’s desirability to a bank include savings and paying rent. And he says “savings doesn’t mean you put away €1,000 a month then take €400 out in the final week, it’s based on how much the account is going up over time. So if after a year you have €10,000 then you weren’t saving €1,000 a month, it was more like €833.”

Low-cost finance

He also urges buyers to “get the cheapest rate you can. At the moment there are generally no fees for breaking a fixed rate and fixed rates are the cheapest, so go for low-cost finance – one euro is the same as the next so when you borrow, focus on price, not gimmicks. Any decent adviser can walk you through how to calculate that.”

Joey Sheahan is the head of credit at MyMortgages.ie. "Banks are lending, without a doubt. But they are also applying rigorous credit assessments and approval processes before saying yes to any mortgage applicant," he says.

“Applying for a mortgage is a big undertaking – and one which needs to start months before the application forms are even looked at. You might only get one bite at the cherry with a lender so it’s crucial you put your best foot forward.”

He says anyone who thinks they might be in a position to take their first steps onto the property ladder should begin “at least three, but ideally six, months out”.

He says before a bank “will give any consideration to a mortgage application” it will first look the applicant’s credit history and their recent banking history.

“Ultimately, what they are looking for is a capacity to repay any loan tendered and a propensity to do so, as evidenced by past behaviour. There are a number of ‘red flags’ that will put a lender off in part, or perhaps, in full – any applicant must ensure that these are not raised on their application. “

Among those red flags are overdrafts, whether authorised or otherwise. They also frown upon online gambling appearing on bank or credit-card statements as they amount to an unquantifiable loss. Cash advances on credit cards don't look good and nor do erratic savings or spending patterns. A poor credit rating is also a big no no.