For most of us, it’s our biggest loan, so little wonder there are a lot of questions
1 I will never escape the negative equity nightmare. When some property prices fell by more than 50 per cent in the crash, hundreds of thousands of Irish homeowners found themselves in the unchartered waters of the negative equity swamp. But life goes on and so does the mortgage business. Banks have responded – albeit slowly – to our changed reality by increasing the options for those in negative equity who wish to move. Bank of Ireland, for example, allows customers carry the negative equity portion of their old mortgage forward and add it to their new mortgage. The maximum new loan-to-value is 175 per cent.
2 I have to be a customer of a bank to get a mortgage from them. Not true. You do not need a prior relationship with a bank for it to consider offering you a home loan. If you are attractive to them, they will be happy to work with you, no matter where you have your current account.
3 It costs more to buy than rent. It doesn’t you know. The most recent Daft rental report covering the last quarter of last year showed that the average rent nationally was €865 per month, up 7.1 per cent on the same quarter in 2012. This is significantly higher than the repayments for an average first-time buyer mortgage issued by Bank of Ireland in the same period. Property prices are higher in the major urban areas but rents are higher here too. According to the most recent ESRI report, rents in Dublin are now back at early 2009 levels and climbed by 7.6 per cent last year. At the end of last year, the average national rent for a house was €744. In Dublin, it averaged €1,168.
4 But banks aren’t lending. They are lending again and all the main banks in the State are looking for new business, even if it is business on their terms. Bank of Ireland says it has approved its full €2 billion fund in mortgage lending to first-time buyers and movers that it launched in October 2012. It also has an additional €2 billion fund available to meet ongoing demand for mortgages.
5 I will need a huge deposit. Not really. In a perfect world you would have saved a big bundle of cash, but the world isn’t perfect. Bank of Ireland provides mortgages at LTV up to 90 per cent. This means mortgage applicants need to have saved 10 per cent of the purchase price to apply for a mortgage. Applicants should also have funds available to cover additional costs such as stamp duty and legal fees.
6 I am single – banks have no interest in me. This isn’t true either. Lenders don’t care about your relationship status, they care about your ability to repay your loan. The amount someone can borrow is based on a number of factors including your income, the rent you’re currently paying, how much you have saved, how you operate your bank account and so on. All applications are assessed on a case-by-case basis.
7 I should not overpay my mortgage because rates are low. It is true that interest rates are low but overpaying your mortgage if you can afford it will save you money and reduce both the interest the mortgage term. Even small overpayments can save you a lot of money.
8 If I overpay or make lump sum lodgements I could lose my tracker. Making overpayments or lump-sum payments into your tracker mortgage does not affect the rate you are on.
9 Approval in principle is the same as full mortgage approval. It depends on the bank. Bank of Ireland, for example, provides mortgage approval on the basis of a full credit assessment which makes it a formal approval, not just approval in principle but approval you can act on. This nature of the approval is key as sellers will want to be absolutely sure you have the funds available before they accept your offer.