Sometimes it’s not always about doing the right thing; doing the wrong thing can also impact whether or not you can borrow, and how much a lender will offer you. So, before you go shopping for a new home, here are some things to bear in mind.
Don’t keep a messy bank account
If you have unpaid items or referral fees on your current account, it is best to wait six months before applying for a mortgage, as these might impact your application.
You will also need to show repayment capacity, ideally over the previous six months, so if you’re paying rent, make sure this is shown in your accounts – if it’s a casual arrangement, try to formalise for at least six months. If you’re not paying rent but are saving, again make it easy for the lender by showing regular payments out of your current account to a savings account.
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Don’t disregard shopping around
Yes, it may take a bit more effort, but locking in to a cheaper rate can you save you a lot over the long term; essential when you consider that rates range from about 3.65 per cent to more than 7 per cent.
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One way to get a cheaper rate is if you are entitled to a green mortgage offering. Lenders typically offer these on homes with a Ber rating of A1-B3.
If you are buying such an energy-efficient home, make sure to tell your lender; both Haven – AIB’s broker subsidiary – and Bank of Ireland, now offer a rate of 3.65 per cent over a four-year term to qualifying borrowers.
This can mean substantial savings.
On a 30-year €32,000 loan, opting for a green rate of 3.65 per cent, as opposed to a rate of 4.5 per cent on a standard loan, would save you about €56,000 over the life of the loan, should interest rates stay the same, or about €157 a month.
Cashback mortgages remain popular for obvious reasons. Getting a lump sum when you draw down your mortgage is attractive when you have to furnish your new home.
And it can be substantial.
With Bank of Ireland, for example, you can get up to 3 per cent of your mortgage back (so €9,000 on a €300,000 mortgage). Two per cent is available at drawdown, with a further 1 per cent possible after five years. Permanent TSB offers 2 per cent back at drawdown, and Haven offers €5,000 back.
Of course, there’s no such thing as a free lunch, and this can be the case with cashback mortgages, as you may end up paying a higher rate of interest on your loan.
You’ll also need to consider whether to fix or stay variable. The best rates are typically available on fixed rates, and remember, many lenders allow you to overpay your mortgage, even if you’re fixed (though often within certain limits).
Don’t ignore Central Bank rules
With lending to first-time buyers now determined by the Central Bank’s rules on mortgage lending, it makes sense to do your own sums before you even approach a lender.
If you’re a first-time buyer, then you will be able to borrow four times your income, combined or otherwise. So, a person/couple earning €80,000, for example, will be able to borrow up to €320,000.
Given that the other mortgage rule will only allow you to borrow 90 per cent of the purchase price of your home, an income of €80,000 will translate into a new home worth about €355,555 based on a 10 per cent (€35,555) deposit.
If you’re a second-time buyer in the market for a new home, you’ll only be able to borrow 3½ times your income – so €280,000 for someone earning €80,000.
Remember, however, that banks can give exemptions to the rules, and may lend you more, depending on your circumstances, so check this with your lender.
Don’t forget about State incentives
There are a number of State schemes that can help you secure the purchase of your new home.
Help to Buy, for example, offers a tax rebate of up to €30,000 to help purchase a new home. It is due to run until the end of December 2025. There are a couple of caveats to consider: if you’ve been working abroad in recent years, you may not have paid enough tax for a full rebate; you need to be a first-time buyer to qualify; and it only works on homes valued at up to €500,000.
The shared equity, or First Home Scheme, is another incentive aimed at first-time buyers. It is aimed at closing the gap between what you might be able to afford, and what you want to pay, through the Government taking a stake in your property, of up to 30 per cent (or 20 per cent if you’re also getting Help to Buy). All the main lenders have signed up for the scheme, and homes valued at up to €500,000 may be eligible. Price ceilings were recently raised to €450,000 in Galway city, and €400,000 in Limerick city and county.
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There was strong interest in the scheme last year – most notably in the main urban areas – with more than 7,500 expressions of interest, according to the Department of Housing.
It is available in new home schemes such as An Tobar in Patrickswell, Co Limerick, where three-beds start at €390,000.
Bear in mind that the equity stake will have to be repaid should you choose to move, and if you don’t, you will start paying a fee on it from year six.
Another option is the Local Authority Home Loan, which offers finance to those who may not be able to access it otherwise. It is available if you’re looking to buy a new, or second-hand home, but its attractiveness has waned somewhat due to a recent hike in interest rates. It is now offering a rate of 4 per cent fixed for 25 years, or 4.05 per cent for loans of 25-30 years.
