Banks lending to chosen few


First-time buyers can get a mortgage, but only if they are creditworthy and in secure employment, writes CAROLINE MADDEN

THE STATE’S two main banks, AIB and Bank of Ireland, have been at pains to convince the public they are open for mortgage business, taking out full-page advertisements to that effect and launching first-time buyer packages with great fanfare.

Those of a cynical disposition suspect that the banks protest too much, that these initiatives represent little more than a PR exercise designed to appease the taxpaying public that bailed them out so generously last month, and that the banks are not, in fact, lending.

Others say the banks are simply adopting a more prudent approach to lending.

So what’s really happening in the mortgage market?

Karl Deeter of Irish Mortgage Brokers feels there is “some misinformation out there”, referring to recent media coverage that implied banks are not lending. “That’s just not true,” he says.

However, banks are taking steps to lend more responsibly, he says. “A lot of the people who are out there looking for mortgages at any given moment in time are not what they would call the traditional creditworthy borrower,” Deeter continues.

“In the past they would have gotten a mortgage but now. . . [the banks are] going to lend with hardened criteria. That’s part of the medicine. What we have to get over is this mentality of entitlement to credit.”

With interest rates at record lows and the price of houses continuing to fall, affordability is not the main obstacle standing between first-time buyers and their dream home. Now the big issue is job security, or rather the lack thereof.

While Deeter feels the banks are taking a more sensible approach to lending, he is also of the opinion that they are going “beyond the call of duty” in terms of delving into the job security of mortgage applicants. Banks are now carrying out what he describes as “forensic underwriting” when assessing a person’s application.

“They’re starting to pull the accounts for a [private] company that the person works for,” he says. “I feel there is an ethical line being crossed.

“They want to know every last detail they can possibly get their hands on.”

Michael Dowling, spokesman for the Independent Mortgage Advisers’ Federation, says that, while some banks such as AIB and Bank of Ireland are lending to first-time buyers at competitive rates, “they are very choosy and they are cherrypicking a particular type of customer”.

“The problem you’re faced with is that the banks are now making an assessment of whether or not they feel [the applicant] will have a job in six months’ time,” he says, adding that there is “no scientific basis for making that assessment”.

Not surprisingly, banks are not lending to anyone working in the construction sector. This includes everyone from tradespeople to architects and, in some instances, solicitors (unless they are partners in a practice), particularly if their practice derives a lot of its income from conveyancing work.

“Estate agents are personae non gratae,” Dowling adds.

In the primary school sector, many teachers work on temporary contracts until they ultimately get a permanent position. In the past this did not present a problem when applying for a homeloan.

“If you were a teacher on a contract, you could get a mortgage. Now they’re saying, ‘no, we only want permanent employees’,” says Dowling.

“The only certainty in terms of getting a mortgage is a civil or public servant who is permanently employed. There is no issue with that category.”

Despite the protestations by the banks, figures published recently by the Irish Banking Federation (IBF) confirm that lending to first-time buyers has dropped sharply.

Just 20,000 first-time buyers drew down mortgages in 2008, compared with more than 30,000 a year earlier.

IBF chief executive Pat Farrell pointed out that the recapitalised banks, AIB and Bank of Ireland, have committed to providing an additional 30 per cent capacity for lending to first-time buyers, and he estimated that this should boost the number to roughly 26,000 in 2009.

With its prominent “Mortgages for Sale” advertising campaign, AIB is certainly showing all the signs of a bank keen to attract the custom of first-time buyers. It is currently offering a promotional one-year fixed annual percentage rate (APR) of 3.21 per cent to first-time buyers who get approval by March 31st and draw down their mortgage by the end of June.

According to a spokesman for AIB, the bank approved 150 mortgages for first-time buyers in January, up from 115 in the same month in 2008.

However, the decline rate, ie the percentage of mortgage applications that are turned down, would be a more telling indicator of just how “open for business” the bank actually is.

AIB declined to provide this information.

On Monday, Bank of Ireland announced details of its new first-time buyers’ package, which not only boasts a one-year fixed rate of 3.5 per cent APR, but offers €1,000 in cash to sweeten the deal.

Ulster Bank recently launched Secure Step, an innovative mortgage product aimed at both first-time buyers and customers trading up. It offers customers a mortgage of up to 95 per cent of the purchase price of certain properties, and a guarantee that provides some protection against future property price falls.

Specifically, if the value of the property drops within five years of purchase, the customer’s mortgage will be reduced by up to 15 per cent of the original purchase price.

This may seem like an attractive proposition for borrowers, but brokers point out that the properties covered by this product are located in developments financed by the bank. Borrowers should therefore ensure they are paying the market price, as it is in the bank’s interest that the maximum price is achieved for the properties.

“My advice to consumers is to get a second valuation yourself. It only costs about €100,” says Dowling.

Don’t be overly influenced by the fact that 95 per cent finance is available, he adds, and don’t forget the basics, like negotiating on price.

“Prices are continuing to fall and it is very much a buyer’s market out there so while it’s a good facility and it does offer some options to people, just be cautious,” he says.

READY TO BUY: young still keen to have a home

FALLING PRICES are attracting potential first-time buyers to the property market, new research has found.

A survey of 500 non-mortgage holders aged between 20 and 35 carried out on behalf of Bank of Ireland revealed that 38 per cent were considering buying a home within the next 18 months.

When asked why they would consider buying a property, 68 per cent said they were attracted by lower property prices, while one in 10 cited lower mortgage interest rates.

Buying their first home is a key priority for this group, with 81 per cent ranking it in their top three goals, along with progressing their career and further education.

However, only 8 per cent of those surveyed think it is easier to get mortgage approval now than it was two years ago – hardly surprising given that banks have tightened up their lending criteria considerably since the liquidity crisis struck.

“This is similar to the feedback we are getting from customers who believe banks were not prepared to lend to them,” said Brendan Nevin, director of consumer banking with Bank of Ireland.

He pointed out that the bank had just launched a €1 billion fund for first-time buyers. Despite such initiatives, some commentators remain sceptical about whether banks are actually lending (see main article).

The collapse of the property market notwithstanding, seven out of 10 surveyed still believe buying a home is one of the basic goals of life, so it looks like we won’t be turning into a nation of renters any time soon.