Lenders offering 92% of mortgages

MORTGAGES: Most lenders are now prepared to offer 92 per cent mortgages to home buyers, with some approving 100 per cent loans for investors who wish to cross-securitise the loan with existing property.

While consideration of personal circumstances means the value of loans approved for different people vary, all lending decisions are, or should be, based on a set of strict Central Bank criteria.

These criteria, which sit on top of general prudential lending requirements, range around three main issues:

1. Verifying income. The lending institution should request copies of a mortgage candidate's P60 statements to confirm salary history over the previous three years, particularly in the case of new customers.

Payslips are judged to represent insufficient proof of income in this regard, as are letters from an employer. If payslips are furnished, these must be cross-checked against the P60. If a person is self-employed, audited accounts will take the place of the P60.

2. Confirming the deposit source. Banks must seek proof that mortgage clients have not funded the deposit on their home purchase through borrowing from another source. Bank statements will usually provide proof on this issue. Where the deposit is drawn out of a parental gift, bank statements from parents should be produced.

3. Stress testing. All mortgage approvals must be stress-tested to ensure the customer will be able to bear repayments in the case of raised interest rates. The Central Bank currently advises a stress test of 2 per cent above the standard variable rate, meaning that if a mortgage is sought at a 5 per cent rate, it should only be approved if the buyer could support repayments at 7 per cent.

The Bank, which conducts random investigations of mortgage files across all institutions on an ongoing basis, can seek proof that stress tests have been carried out. In 2000, 52 separate on-site investigations and 53 off-site reviews were carried out.