Buying smart

Live like you own a house before trying to get a mortgage is the message first-time buyers (FTB) need to take on board before embarking on a property search. While mortgage finance is available, it is going to the best candidates. So if a property purchase is on your agenda in 2014, it may be time to get your finances in shape – and get searching for your dream home.

There’s no doubt that FTBs are slowly but surely taking their first tentative steps on the property ladder. According to mortgage statistics from the IBF/PwC, first-time buyers are still the largest category of buyer, accounting for 52 per cent of loans in the fourth quarter of 2013. The average loan size for a FTB in the fourth quarter of 2013 was €157,035 meaning an average purchase price of about €174,000.

Indeed Dublin estate agent Felicity Fox has noticed more interest from FTBs of late.

“Confidence is coming back. People can see that they have missed the bottom and that there is more growth to come”.

And this is mirrored throughout the country, with Bank of Ireland reporting demand for mortgages from all across the country.

While there has been a recovery of sorts, prices are still relatively low. This means that for many, buying a property is affordable - indeed Bank of Ireland estimates that house affordability is at its best level since 1998.

However, today’s FTB is older - Bank of Ireland reckons the average age is 33 - and that bit more experienced, having seen the impact of the downturn. Anecdotally estate agents are saying that FTBs are a good five years older than they were during the boom.

In Dublin, FTBs still generally prefer houses. However apartments are in demand in prime locations near the city centre such as the Dublin Docklands. Outside the capital, it is family homes that are in most demand. More FTBs are buying on their own - about 40 per cent are single purchasers according to Bank of Ireland - and they’re a lot fussier.

“It’s really about good location, anywhere there’s good transport is attracting FTBs,” says Fox, adding that “there’s a lot more caution than there ever was”, which means that FTBs are more discerning when it comes to finding a property that will grow as their family grows.

However, as prices rise, Fox expects interest from FTBs to stretch to outlying suburban areas.

“I think there are now a lot of buyers priced out of the market. These people are starting to spread their wings to other locations.”

But are FTB actually able to get financing?

“There is no doubt that the banks are looking better. At the moment, some FTB s are telling us that they’re getting approval from severalbanks,” says Fox.

“Financial advisor Trevor Grant, of Select Finance Group, agrees. “There is certainly more credit available than at any stage in the past three of four years,” he says.

Indeed Bank of Ireland provided in excess of €2 billion in mortgage approvals under its FTB and Mover fund which was launched in October 2012. It has an additional €2 billion fund available to meet current and anticipated demand.

However, it’s not all plain-sailing as the banks take a “near forensic” approach to their due diligence and are looking for a solid track record of savings.

“In terms of getting a mortgage approval it is quite a process. It’s not about deciding this morning that you want to get a mortgage,” he says, adding that banks will want to see evidence that you have been conducting your accounts in a proper fashion, with no overdrafts or money spent on gambling in the past six months, as well as a record of rent.

“If you’re renting make sure that the rent is clearly shown as mandated from one account to another,” he advises, adding that if you’re not paying any rent, or if it isn’t documented, it will be a “big black mark against you in terms of trying to get a loan approved”.

Bank of Ireland’s advice is that even if you’re living at home and making a contribution to the household. “It’s a very good idea to set up a standing order to your parents’ account so that you can show a record of this, rather than pay regularly in cash,” says Aine McCleary, head of mortgages.

Bank of Ireland, will lend up to 4.75 times a gross annual income over a term of up to 35 years.

“The primary consideration is repayment capacity, which is your ability to repay the loan, even if interest rates rise or your circumstances should change. A track record of savings is also important,” says McCleary.

Outstanding borrowings will also affect your ability to get a mortgage, or how much you can borrow, so the advice is to try and pay down these loans as much as you can before applying for a loan.But despite the resurgence in demand, and the matching supply of financing, mortgage lending remains subdued. Indeed figures for 2013 show that the number of mortgages granted fell by 14 per cent. So what’s going on?

In Dublin, and in high-demand areas of cities like Cork and Galway, it likely comes down to supply, with FTBs simply unable to complete on a property that best suits their needs and their budgets. They often have to compete with cash buyers and there can be multiple bidders for good properties. New builds are still scarce, particularly in the areas that today’s fussier FTBs wants to purchase in and this lack of supply is likely to remain the key challenge for FTBs in cities around the country.