€1 million mortgages are now the norm

CityLiving: Mortgages of €1 million and over are so commonplace that some banks even have specialised departments dealing with the sector, writes Jane Suiter

Ever-rising property values have translated into killer mortgages for many people. Just a few years ago a development of €1 million homes made the headlines. Now €1 million mortgages are becoming commonplace across the State.

There are thousands of people taking on levels of debt that would have horrified their parents or grandparents. Million-euro mortgages are becoming increasingly common while some lenders even have €3 million-plus loans out to individuals simply to pay for their family home.

Thousands of people buying properties in more established suburbs from Clontarf and Malahide to Rathgar and Killiney are now looking at mortgage payments running into thousands of euro a month. Such is the demand for mortgages to fund properties in the €1 million-plus bracket that some banks have set up specialist divisions to deal with large mortgages.

ICS, for example, has a specialist group simply to look at all loans over €500,000, which now make up 15 per cent of its total business. These loans are almost always on a 3 per cent tracker rate.

The decision on whether to lend on a larger mortgage is almost always more complicated than a straightforward first-time buyer loan. "Some of these people may have several properties or be high net worth individuals. It is often not just a case of looking at income but at equity in other properties. Each case is fairly individual," an ICS spokeswoman said.

According to one banker, medics make up the bulk of the €1 million-plus mortgages on their books. "In the early days of their career many consultants see their income rising in a straight line. They may be looking at income of €100,000 in the first year after their appointment but it will be close to €600,000 after six or more years.

He adds that many doctors return to Ireland after a period abroad where property prices may be far lower. "They may only come back with €500,000 from their property but still want to buy a €3 million property." And, according to Sarah Wellband of Rea Mortgage Services, quite large numbers of people are coming in for big mortgages, which she categorises at over €800,000. "These are mostly company directors, doctors, solicitors and accountants."

She adds that many people are trying to hold onto their old property as an investment and thus need large loan-to-value ratios for their new home.

But mortgages of this size translate into massive monthly repayments, which must put a serious dent into even the pockets of the wealthy. Repayments on a €800,000 loan come to around €3,898 while those for a €1.2 million loan come to some €5,848 but for the €3 million loans it's a massive €14,619 every month.

In a bid to cut the repayments, Wellband says many people opt for an interest-only mortgage, which dramatically cuts mortgage repayments. "Many people plan to use bonuses and future salary rises to pay off their capital. So they take out an interest-only loan and then make capital repayments when they can. An interest-only loan on a €1 million loan costs around €2,500 a month compared with €4,740 for a repayment mortgage."

But many lenders are not so keen. ICS, for example, will only allow interest-only loans on investment properties and then only for a maximum of 10 years, while the EBS will occasionally allow it for a short time, particularly if you need to get the house renovated and have to pay rent at the same time.

All the lenders insist that those taking out loans of this size are well able to afford the repayments. Dara Deering of EBS says they do not allow people to borrow over 40 per cent of their net salary. "We also have guidelines where we set out what someone needs to live on a month. We assume that a person on €100,000 will need more to live on than someone on €50,000." She declined however to say how much this was.

But even those buying more modest homes are also holding down mortgages undreamt of a few years ago. The average first-time buyer mortgage in Dublin is now borrowing around €250,000 to €350,000 say the bankers. And a home costing €600,000 to €700,000, which is not untypical in Dublin, will translate into a loan of €400,000.

These figures are camouflaged in the official data published by the Department of the Environment, which includes remortgages, and thus the average size of a mortgage is still, perhaps, surprisingly low. According to the latest Department of the Environment figures, the average size of a mortgage on a new home in the three months to the end of September was €196,000. These are official figures, to which all lenders are obliged to contribute.

Lenders also point out that tens of thousands of people have immigrated over the past few years and most of these tend to be aged between 25 to 40. Many have earned large salaries abroad and often have owned property which they have cashed in. Many work in well-paid sectors of the economy, particularly as accountants and solicitors.