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Recent figures from the Banking and Payments Federation Ireland have seen mortgage approvals rise by 20.4% in the month of June, though they are down 49.5% when compared to last year. Of these approvals, 46.8% were for first-time buyers.
Despite the COVID-19 pandemic, the criteria for mortgage approval haven’t changed. These regulations are set by the Central Bank of Ireland, who conduct an annual review of mortgage measures before deciding whether to keep the rules as they are, or make necessary adjustments (in the interest of consumers and the greater economy). No one knows what will happen for the remainder of 2020 or in 2021, but for those hoping for a mortgage, it’s good to know things are, for now, still business as usual.
COVID-19 has been a severe and unprecedented shock and it is more important than ever that the Central Bank is well connected to the communities that it serves
“We continue to closely monitor the impact of COVID-19 on households and firms,” the Central Bank says in correspondence with Irish Country Living. “COVID-19 has been a severe and unprecedented shock and it is more important than ever that the Central Bank is well connected to the communities that it serves.”
First-time buyers can currently borrow a maximum of 3.5 times their annual income. If your annual income is €40,000 per year, you have the potential to borrow up to €140,000. If your partner is making a similar annual income, that increases to nearly €300,000. Unlike with the recession of 2008, the Central Bank says that Irish financial institutions are better prepared for any oncoming financial fallout resulting from COVID-19.
“The domestic banking system is better capitalised, funded through more stable sources of financing, and significantly smaller than it was at the onset of the previous financial crisis in 2008,” they say. “This means that it is in a better position to absorb shocks arising from COVID-19, rather than amplifying them.”
Help to Buy Scheme
Making the 10% down payment is a problem for many would-be mortgage applicants. With the unveiling of the government’s July Stimulus Plan, it was announced that first-time buyers are now eligible for a revamped Help to Buy scheme, which has been increased to a potential 10% of the property value (or a maximum savings of €30,000).
Originally introduced in 2017 as a means of incentivising new builds and to help first time buyers afford a down payment, the Help to Buy scheme was previously 5% of the total value of the property (or up to €20,000). This scheme only applies to self-builds or new builds.
According to Paddy Carolan, senior mortgage advisor with the Irish Mortgage Corporation, this 10% can remove the burden of a deposit for those struggling to save.
“It should be a great help to first-time buyers trying to save a deposit while paying very high rent,” he says. “Now, they really only need to have saved the 1% stamp duty, pay the legal fees (approximately €2,000) and the valuation fee (€150-€220). To qualify for the maximum €30,000, you need to have paid this much tax in the past four years.”
To find out how much you qualify for, log into myAccount at revenue.ie, where you can apply as a single person or couple. If planning to use the Help to Buy Scheme as a deposit, you must obtain approval for the scheme before applying for your mortgage; including your reference number with the application. Paddy also notes lenders will always take a negative view if you have no savings, so it’s important to save as much as possible before applying for a mortgage, regardless of the scheme.
“[This scheme] will really help first-time buyers who are not fortunate enough to have family who can gift them a deposit,” he says.
Change in circumstances
That’s the good news. The not-so-good news? It’s true that banking institutions are being more careful when it comes to mortgage approvals. This can complicate things for first-time buyers – especially those who work within certain industries, or those in receipt of the COVID-19 Temporary Wage Subsidy Scheme payment.
Brian Hayes, CEO of the Banking and Payments Federation of Ireland, says there is no doubt the pandemic will continue to have an effect on mortgages, but any limitations put in place are ultimately for the good of the client.
Repayment capacity is always the main concern for lenders; this hasn’t changed as a result of COVID-19
“In our recently published guidance, in respect of the mortgage application and approval process during COVID-19, [we] outline that, as customers move through the various stages of the approvals process, they may be asked to confirm that their employment and income situation has not materially changed,” Brian says. “In cases where changes have occurred, and depending on the circumstances of each individual case, a review with the applicant may be undertaken by the lender to determine whether or not the applicant can still afford to make agreed regular mortgage repayments.”
Repayment capacity is always the main concern for lenders; this hasn’t changed as a result of COVID-19. However, the pandemic may have affected an applicant’s ability to make repayments. Some who were pre-approved for mortgages (pre-pandemic) may not now be eligible, and those approved are expected to submit multiple pay stubs and regularly updated bank statements. Lending institutions are not allowing many exceptions from the Central Bank regulations (normally, they can offer exceptions above the rules on a limited basis). Because each individual has a unique set of financial circumstances, using an unbiased mortgage broker could be the easiest way to secure a mortgage.
“We can advise on who will lend [a client] the most, or who will offer them the best rate,” Paddy says. “We will also compare mortgages over the short term and long term, which can help a client decide between a ‘cash back’ offer or going for the lowest long-term rate.”
Only two lenders, KBC and Finance Ireland, currently allow clients to get a Letter of Offer while they are still on a COVID payment
Currently, lenders are looking for payslips within two weeks of drawdown to confirm applicants are not on the Temporary Wage Subsidy Scheme. They are also looking to clients to advise whether or not they are happy to proceed (in some cases, individuals are choosing to opt out of their application). Lenders are wary to lend to those in certain industries, even if they currently have job stability.
“Only two lenders, KBC and Finance Ireland, currently allow clients to get a Letter of Offer while they are still on a COVID payment,” Paddy says. “The airline, leisure and travel industries have been affected the most, but in each case [the applicant] will be reviewed for risk assessment. There is a small amount of leeway if it’s a joint application and the main earner is not on the COVID-19 payment.”
Reduction in interest rates?
If applicants can work around these obstacles, a possible reduction in interest rates could be a light at the end of the mortgage tunnel. Permanent TSB recently announced they will be cutting their standard variable rates from 4.5% to 3.95%, while new clients could get rates as low as 2.5% (the average fixed rate in Ireland currently stands at around 2.9%).
In a statement, newly appointed Permanent TSB CEO Eamonn Crowley says the move addresses the discrepancy that traditionally existed between their pricing for new and existing mortgage customers.
We will continue to evolve our mortgage pricing strategy in this direction as we go forward in line with our ambition to further build trust with customers
“Overall it combines enhanced competitiveness with increased fairness,” the statement reads. “We will continue to evolve our mortgage pricing strategy in this direction as we go forward in line with our ambition to further build trust with customers.”
A new lender, Avant Money, will also enter the Irish market in coming weeks; promising the “lowest mortgage rates on the market”. They will only offer mortgages through the broker channel, with a limited number of the main brokers chosen for the initial launch.
1 Find a broker who deals with all lenders in the mortgage market
“Some lenders are more strict than others when it comes to COVID-19, so if you are intent on buying this year, you want to give yourself the best chance of getting the approval you need,” he says.
2 Don’t put off your application hoping prices will fall
“Supply is still well short of demand and while house prices fell by over 12% in April, they have recovered, and in most places are selling for pre-COVID prices,” he says. “There are very few Central Bank exceptions available, which is keeping prices stable. Past years have shown: when exceptions are available, prices tend to increase.”
3 Have a plan
“Find out how much you need to be saving or paying in rent each month,” Paddy says. “Avoid using overdraft facilities, if possible, and make sure that no loan or credit card payments are missed by accident.”
If you feel your mortgage application was unfairly denied:
If a mortgage applicant is not satisfied with how a regulated firm is dealing with them, or they believe that the regulated firm is not following the requirements of the Central Bank’s codes and regulations or other financial services law, they should make a complaint directly to the regulated firm. If they are not satisfied with the response from the regulated firm, they can refer the complaint to the Financial Services and Pensions Ombudsman. Further information on how to make a complaint is available on the Central Bank of Ireland’s website (centralbank.ie).
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