Why won’t bank factor in sale or rent of apartment?

QUESTION: We recently visited a few banks to get a feel for what we’d have to do over the next year or so to qualify for a mortgage to buy a house nearby.

The banks went through the previous six months of bank statements and wanted to see the minimum amount saved over this period and used this as the baseline of what we could afford to repay on the new mortgage.

My question is why they will give zero recognition to the circa €1,500 mortgage repayment we’ve been paying for the last 10 years. “This money, paid every month, cannot be taken into account” claimed all the banks visited.

Given that the apartment will either be sold (whilst absorbing any negative equity loss remaining), or rented out leaving a circa €400 a month tax/mortgage shortfall burden, the €1,500 won’t be being paid anymore.

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Mr D.I., email

ANSWER: This is exactly why banks get a bad name. It's tough enough saving up money for a deposit in the current circumstances but it's even tougher when lenders are being less than clear in what mortgage customers can expect.

I approached four major lenders in the Irish market with your query, without identifying you in any way. To be fair to them, as I did not know whom you had approached, nor the size of mortgage you’re looking for or the increase in payments that would be required, I sought from them an understanding of how they would treat such a scenario rather than an official response. Of course, in part that acknowledges that no bank would ever discuss the affairs of a particular customer.

The problem you’ve encountered is reflected faithfully in the response from one of the four.

“The bank assesses mortgage applications on an individual basis taking all applicable factors into account such as income, savings, rent, outgoings, etc. We can’t comment on specific cases and suggest that your reader talks directly with their mortgage provider or seeks independent financial advice.”

This can best be described as being deliberately unhelpful.

No-one sought comment on specific cases, but rather the general issue of whether imminent savings stemming from the fact that you would sell your current home (or rent it out to largely meet current mortgage costs) would be taken into account in assessing

Second, as the bank knew, you had already approached a mortgage provider. It was precisely because of the failure of the mortgage provider to provide any clarity that you approached me in the first place.

Those two issues aside, the bank simply refuses to address in any way the substance of your query, trotting out instead tired generalities. You assume all applications would be assessed on an individual basis – although even there you might be surprised. Certainly, in your case, no effort appears to have been made to assess individual circumstances. You would also assume that factors such as income, savings, rent, outgoings etc would be taken into account.

Your question was what account should be allowed for existing loan payments that will no longer be a factor post the new purchase. You are still none the wiser.

Of the other three lenders I approached, one did not even bother to reply despite two separate communications.

The other two address the position should you rent out the current home – but not the prospect of you selling it. On renting, one says, helpfully, that it will determine a “sustainable” level of rental income “after all associated costs have been deducted”. From this, it will subtract mortgage payments. Importantly, the assessment of mortgage payments will assume rates are two percentage points higher than the current level – with a minimum mortgage rate of 6 per cent.

After all that, any surplus monthly cash will be taken credited to you in determining how much of a mortgage you an afford.

So they will allow some of any likely rental income but not all – which seems reasonable. However, despite the current rental market boom, the amount of rental income not yet realised that they will allow could disappoint.

It remains a mystery what, if anything, any of the lenders will allow of your current €1,500 mortgage outgoing on the basis that you sell the apartment.

So where does this leave you?

In effect, you are being penalised for your good track record. If you were currently renting and planning to buy, clearly the current rent would no longer be a cost to you and would be factored in. But the bank are, to varying degrees, reluctant to factor in the freed-up cash from selling your home.

However, some of the responses do not appear to be as black and white as your feedback that such money “cannot be taken into account”.

I suggest you try a wider range of lenders, pressing your case rather than accepting the first rebuff on this income. And remember, with Irish banks, customer loyalty counts for less that nothing. New customers will get any favourable treatment going; existing, loyal customer very rarely do.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.