Don't know your life assurance from your APR? Your tracker from your broker? Read the instant guide to buying a house by Frances O'Rourke
Getting onto the property ladder is achievable: although the price of houses in Ireland has never been higher, interest rates - though rising - have never been lower.
And the arrival of 100 per cent mortgages means that many FTBs don't need to get their hands on a hefty deposit, until recently, the single biggest obstacle facing them.
But buying a house may be the first serious financial reality check many young buyers will face. John McGuire of First Credit mortgage brokers (and presenter of RTÉ's I'm An Adult, Get Me Out of Here) says that currently, personal debt is the single biggest obstacle facing many FTBs.
Many potential buyers may have debts incurred for car loans or college fees or simple credit card debt that can range from €10,000 to as much as €20,000. Such debt can reduce the level of home loan you'll be able to get by up to €100,000 - so the very first step to take if you want to buy a home is to get rid of the debt. If you are in any doubt as to your credit rating, you can check it out by applying for the information from the Irish Credit Bureau - it will cost €6. Call 01 2600388 to find out how.
Nowadays, says McGuire, many parents step in to help out adult children at this point, by helping them to clear off outstanding debts.
THE MONEY
Once this is sorted, you can begin to seriously consider looking for a loan and buying a house. Before you start surfing the web, go out looking at houses, talking to estate agents and mortgage brokers and getting bogged down in the complexity of 20 to 40-year mortgages and fixed rate versus tracker mortgages and all that, you need to do some simple sums to see how much you can afford to repay every month. The Irish Financial Services Regulatory Authority (IFSRA) has a handy A4-page budget planner in its excellent Mortgages made Easy booklet to help you work this out.
Find out how much you can borrow, based on your income and that of a partner or friend(s) with whom you may be buying. The rough rule of thumb is that the loan must not exceed four-and-a-half times your income (for joint applicants the limit might be 3.75 times your combined income). But lenders take into account all sorts of variables, like your income and the type and security of your job, outstanding loans, whether you're borrowing with someone else, whether you have a guarantor and so on.
Some lenders may refuse you a loan based on your information, another will make you an offer - so the only way to find out where you stand is to go and find out. You can shop around amongst the banks and building societies yourself. Around 60 per cent of first-time buyers use a mortgage broker, who will do a lot of the work for you, getting quotes from a range of lenders. There are lots of matters to be considered, of course, but at this stage, ask the broker
• how many lenders they will get quotes from
• get three or four quotes from each for different amounts over different terms (monthly repayments on a loan of €250,000 will be lower spread over 40 years than 20, but could cost over €100,000 more in interest over that period)
• ask the broker what fees, if any, you will have to pay (lenders give brokers commission, so either you should pay no fee, or expect to be refunded the commission. Either way, you shouldn't have to pay a fee upfront.)
By the time you're finished shopping around, you will want to get pre-loan approval, so by this point, you should have got down to the nitty-gritty, deciding on the kind of mortgage you want (annuity/ repayment or interest-only); what your interest rate options are and how flexible you want your payment options to be.
The choices open to you are considerable, but this is good, not bad: the important thing is to get basic information to help you make wise choices - and there are many simple guides to help you do this.
The most common mortgage is the annuity or repayment mortgage, where you pay off interest and principal at the same time (more interest than principal at the start of the loan). But even first-time buyers may now be able to get an interest-only mortgage, at least for the first few months/years of a mortgage - this is where you repay only the interest. (When investors get this kind of mortgage, the arrangement is that they will repay all the lump sum at the end of the loan).
Then there's the question of the length of your mortgage - the average is 20 years, but it can be less or more, up to 40 years. The longer one is a lot more expensive in the long run because of the cost of interest - but the good news is that you can (and should) pay down your mortgage as the years go by. That's why you should find out what, if any, are the penalties for changing the terms of your mortgage/switching lenders as time goes by.
As for interest rate options, don't be dismayed at the many choices you have - eg, between paying a fixed interest rate for a specified period or a variable rate (it will rise when ECB rates rise). As it seems probable that interest rates are likely only to rise, not fall, in the immediate future, fixing your interest rate seems like a good idea right now.
And one last thing - it's important to remember that even if you get an 100 per cent mortgage, you'll need some savings to pay for costs associated with house purchase - these include the solicitor's fees, survey fee, the lender's valuation fee, possibly stamp duty, various registration fees and of course some basic furnishings.
On a loan of, say, €350,000, you should budget around €5,000 to €10,000 for such expenses. On a 100 per cent mortgage, the lender will arrange a loan to cover the deposit which will be repaid as soon as the mrtgage is granted - but you will have show that you have enough savings to cover the expenses mentioned above.
THE PROPERY
Start looking for your home, if you haven't done so already. The choices are between new and second-hand homes, a house and an apartment, and of course, locations. Many FTBs will already have been looking at the various property websites, or reading the property pages of newspapers/property magazines and will have a good idea of what's available at what price. But even if you think you can't afford to live in the area you most want to live in, it's worth talking to estate agents in that area. Jackie Horan of Sherry FitzGerald New Homes says: "No question is stupid; a good agent will make people feel comfortable. Based on your budget, an agent can help you focus quite quickly on what's available."
It's time to go and look at showhouses of new developments too, to get a feel for what's available. Once you've narrowed down what kind of property you really want, and might be able to afford, you should stay in touch with selling agents in the area(s) of your choice, so that they will alert you if something in your price range comes on the market.
The advantage of buying a brand new house or apartment - apart from it being shiny and new - is that FTBs won't pay any stamp duty on homes up to 125sq m (1,345sq ft) - and not many are bigger than that. But also be aware that you will not get a 100 per cent mortgage on a studio or one-bedroom apartment: that's because lenders want the reassurance that you can rent out a room if you get into trouble making your repayments.
If you buy a second-hand home, you'll have to pay stamp duty of 3 per cent when the property costs over €317,501, 6 per cent over €381,001 and 9 per cent over €635,000.
Estate agents will tell you a lot of things, but do your own homework on the house and the neighbourhood. Consider how much work you may have to do on a second-hand home and how much it will cost. As for location, if you are unfamiliar with an area, some standard tests apply: walk or drive around it after dark, say, on a Friday or Saturday night to see if you are comfortable. If you have any reservations about whether an area is dodgy or not, try to find someone who lives there and ask themabout it. Ring the local authority and check out availability of shops, public transport, schools if that's important. Look in the local authority offices to see what developments are planned in the area.
When you've finally chosen a property, you have to put down a refundable deposit to secure it: that's usually about €5,000 on a new home, or 3 per cent of the sale price of a second-hand home. After this, you'll have 10 to 15 working days before you have to sign the contract. (If you buy at auction, however, you must pay a 10 per cent non-refundable deposit right after the auction.) When the deposit is paid, the builder's/vendor's solicitor forwards copies of the contract and title document to the buyer's solicitor.
THE SOLICITOR
Many people find a solicitor through family or friends, some through websites, others through a mortgage broker. The solicitor's job is to do the conveyancing on your purchase. What this means is that the solicitor will check out any issues to do with title, rights of way, planning issues (eg, have all planning requirements been complied with in extensions/alterations).
In the case of new houses and apartments, matters relating to planning permission, or the conditions attached to handing over a development to a management company need to be checked out. "
The solicitor's role is primarily to receive and consider the title and contractual documentation," says Kevin O'Higgins of the Law Society's conveyancing committee.
"If it's a new house or apartment, the documentation can be voluminous."
In relation to planning permissions - which may be subject to 30 or 40 conditions - nothing can be taken as read, he says.
"The solicitor has to be sure that the builder has done what the planning permission insists in relation to the estate," says O'Higgins.
As for fees, some solicitors charge a flat fee, others a percentage - ranging from 0.75 to 1.5 per cent. The cost can vary from around €1,000 if done through a solicitor from a mortgage broker's panel, up to €3,000-plus.
But O'Higgins warns that cheapest is not necessarily the best - if the solicitor doesn't make sure everything is in order before you buy, it will be difficult to remedy later.
OTHER COSTS
You will need money for compulsory valuation for the lender (around €100 to €150), a structural survey fee, which can cost around €250 -€450, land registry fees, stamp duty and of course, insurance.
You have to get two kinds of insurance, mortgage protection, a life insurance policy that will pay off your mortgage if you die, and buildings insurance, that covers the building, but not its contents, against fire and other damage.
The premium on the first is fixed and is paid monthly; the premium on buildings is not fixed and can rise or fall each year.
While it may be convenient to get your insurance through your lending company, financially, the best thing to do is to shop around, as rates vary considerably.
Also, if you move mortgage companies later on, your lender will cancel your policy and it could be costly to get a new one when you are older. If you arrange the insurance independently, you won't have to change it.
FORMS
Get them sooner rather than later: once you've paid the deposit, and filled in your application form you will have to provide basic information - don't wait until the last minute to assemble it. You'll need:
•proof of identity (passport/driver's licence/utility bill in your name)
• marriage certificate if relevant and PPS number
• your latest P60 , three recent payslips, and a statement of earnings signed and stamped by employer
• if self-employed, an accountant's certificate confirming your income over recent years
• copies of recent bank statements/proof of savings and loans
• policy documents for mortgage protection insurance and home insurance
• a direct debit mandate for mortgage repayments.
Information has never been easier to get, with most lenders and many brokers and estate agents offering free guides for first-time buyers. Two excellent independent guides are:
Mortgages made easy: from the Financial Regulator, you can download it from www.itsyourmoney.ie or from its information centre at 6-8 College Green, D2
The TAB Property Guide 2006/07 by Sandra Gannon and Jill Kerby (TAB Taxation Services, €12.99)
