Banks ease open door to a mortgage

The number of mortgages issued has increased for the first time since 2006, so what do you need to know about applying for funds?

Looking at recent mortgage statistics, it would appear that the property market is finally showing tentative signs of life. Over the course of the third quarter, almost 4,000 new home loans were issued, representing a 10 per cent jump on the same period in 2011.

While overall drawdown levels are still at vastly reduced levels, the most recent period marks the first time since 2006 that the number of new mortgages has risen.

It would be sensible not to read too much into these statistics, but they do give clear evidence that banks are lending again.

But, if you’d like to be one of those 4,000 buyers or so making their mark in the next survey, what do you need to know about getting a mortgage to buy a new home? And which bank are you likely to get it from?

Can I get a mortgage?

The first thing to remember is that getting mortgage approval is not an exact science.

Just because one bank might turn you down, it doesn’t hold that all the other banks will too. Some are lending more actively than others.

In general, you will need to show that you hold a steady job in a steady sector with income from a “sustainable source”; have a good credit history; have the proven ability to service repayments as evidenced by regular savings/rent payments, etc; and aren’t over-burdened with debt.

And how much can I get?

In times past, banks would consider an application for a mortgage based on a multiple of your income.

Bank of Ireland, for example, says it will loan up to 4.75 times gross income but the reality is that the banks are paying far more attention to disposable income than to overall salaries.

In this regard, it’s all about “repayment capacity”. Even if you have income of €80,000, if you have numerous debts or essential expenditures, these will severely hinder your chances of getting a loan.

You need to show the bank that, after outgoings, you have reasonable net disposable income each month.

KBC Bank, for example, will require a couple with two dependent children to have income of €2,500 a month left over after they service their debt, while if you’re single and applying with Permanent TSB, you would need to have around €1,600 per month, or at least €2,500 if you’re a couple.

And a higher requirement may apply for higher earning applicants.

Danske Bank applies a debt servicing ratio (DSR) and looks for candidates whose debt repayments account only for up to 40 per cent of net income.

If you take home €5,000 each month, your debt, including mortgage repayments, should not exceed €2,000 per month.

Get stressed

You’ve passed the first few steps, and your application looks good.

But will it stand up to the stress tests currently being applied?

The banks are now stressing applications at an additional two percentage points, which means that if you’re likely to be paying a rate of 3.8 per cent on your mortgage, the bank will want to make sure you can repay it even if rates rise to 5.8 per cent.

While you might be able to afford monthly repayments of almost €1,400 on a €300,000 mortgage over 30 years, will you be able to stomach €1,760 if rates should shoot up?