The very first thing to do when you decide to move from a vague desire to buy a house to a firm intention to do so is to work out how much you can afford to spend, and where you'll get the money.
Many pundits will say that anyone who is paying rent of £500 a month or more - a fairly typical rent now in Dublin - can afford to buy a house. Mortgage repayments on a house costing £100,000 can range from between £500-plus and £600-plus. But of course, you first have to scrape together money for the deposit (at 90 per cent or 95 per cent of a £100,000 house, between £5,000 and £10,000) as well as the stamp duty if it's a second-hand house (£3,000), and £1,500 or so for legal fees, surveyors' fees and the like.
This is enough to send many people into a panic, but where there's a will there's a way. If you truly have no savings to back up your loan application, asking your parents for a loan is the most obvious way of getting the basic funds together. (Parents as we shall see, are an important resource in buying a house, as indeed they always were.)
In the Dublin market at present, where there is very little habitable property available for less than £90,000 or £100,000, any prospective buyer will probably have to qualify for a mortgage of between £80,000 and £90,000. This means that you must have a single or combined income of at least £25,000 to £30,000 to get a toehold in the housing market.
The good news for first-time buyers, however, is that quite a few financial institutions will now lend three to three-and-a-half times basic income, based on ability to repay: interest rates are so low that someone with a salary of, say, £30,000, who doesn't have major debts, may well qualify for a 90 per cent mortgage on a £100,000 house. Plus, societies have no hang-ups about lending to contract employees, recognising that this is a fact of life for many of their customers.
This is why the very first step on the housing ladder is to find out how much you can borrow, and therefore how much you can afford to pay for a house. Peter Breen of the General Mortgage Corporation says that about 30% of first-time buyers are unsure of how much they can borrow, which puts them under a lot of pressure when they find a property they're interested in, because they're not in a position to bid with confidence.
But again, the good news is that nowadays it's incredibly simple to find out how much you're likely to be able to borrow, compared to the bad old days where you had to save with a specific building society for a year before they would even deign to give you a loan application form.
Rather than trek around all 12 agencies which lend money to people to buy houses (see our mortgage chart to see who they are), you are best off contacting one, perhaps two or more, mortgage brokers. Most estate agents have either their own mortgage department, or links with a broker, so getting the name of one isn't difficult. (Word of mouth is often a reliable way of finding a broker you're happy with; alternatively, the Director of Consumer Affairs should have a list of brokers, who must be registered by the Central Bank.)
Both Peter Breen, of General Mortgage Corporation, which has links with Douglas Newman Good, and Vivienne Brophy of Sherry FitzGerald's own mortgage department, emphasise that using them does not mean you have to buy a house through the agency. It is the lending agency which pays the broker a commission, not you, or the auctioneering firm. Going to visit a broker doesn't cost you anything.
Another choice is to go to a fee-based financial adviser.
Jill Kerby, former Irish Times personal finance journalist and co-author of The TAB Guide 1999-2000, which has a useful section for homebuyers, recommends this step, believing it is money well spent for independent advice. REA's £995 fee covers your conveyancing fees - it calls on its own panel of solicitors - as well as financial advice. The company has a video, "Buying Your House - An Essential Guide" available free of charge and commitment to anyone. Kerby says that a good adviser will go through the downside of various options with you, and help you think through all the angles - e.g., how you'd cope with repayments when you're paying eche creche fees. Once you feed a broker with the relevant details - salary, your regular outgoings, any borrowings you have - they should be able to come up with a range of offers from the different institutions within 24 to 48 hours. As Peter Breen says, this is far better than going to one institution who may reject you. "If one building society says no, you'll just feel rejected and conclude you can't buy a house."
Mortgage brokers are reluctant to be quoted on the matter of loans which are 3.5 times salary, but the fact is that while some financial institutions are sticking rigidly to Central Bank guidelines, and limiting loans to 2.5 times one income, plus the second income, if there is one, quite a few will now lend more than that.
A mortgage broker, or a fee-based financial adviser like REA Financial Services, should be able to show you a comparison between what kind of loan the 12 different agencies will offer you. Richard Eberle, managing director of Rea, says that initially, his company will show you a comparison of the offers from the 12 lending institutions, based, for example, on a 90 per cent mortgage on a £100,000 house, borrowed over 20 years, with a one year fixed rate.
These options - choosing whether to borrow over 20 or 30 years, whether to get a fixed or variable rate of interest - are the kind of details that put some people off thinking about house financing. But knowing that you might actually have a choice - that you don't have to gratefully accept a mortgage from the first institution willing to offer you one - should help you feel more positive about the whole business.
Someone like Rea can show you, for example, how one mortgage might cost you £8,000 or £9,000 more over 20 years. But the agency offering this may not, on the other hand, be willing to offer you 90 or 95 per cent of the value of the house, or may insist on applying the 2.5 times income rigidly.
If you are hoping to borrow the maximum possible, most financial institutions will advise, and some will insist, that you take out a mortgage with the interest rate fixed for one or more years. Thus, if interest rates rise, you won't be hit for extra payments right away, but have a breathing space to sort out what you'll do. Some borrowers will want to spread a loan over 30 years, so that initial payments will be lower: the good thing nowadays is that you can speed up on repayments later if you have the money, which will ultimately cut the long-term cost.
Parents can come in handy if you are negotiating a loan that is more than 2.5 times income. Those institutions willing to lend more money will base their decision on your ability to repay, but if you can offer your parents as guarantors for the loan, some will more readily agree to give it to you. Vivienne Brophy says that this is an increasing trend.
Finding out how much you can borrow is the absolute starting point for house-hunting, and it's easier than many first-time buyers realise. Getting from the point of initial information to approval in principle depends more on you getting together relevant documents - your P60, proof of income, identification - than anything else. The final approval comes after you bid for a specific house.
The other niggling worry that all first-time buyers have is - how much will the extras come to; you should make sure to ask your broker about these. The essential extras if you're buying a second-hand house are: deposit (£5,000 to £10,000); stamp duty (3% up to £100,000, 4% above that - £3,000 on a £100,000 house); bank/building society's valuation of the house (£50 to £100); legal fees - around £1,000; independent surveyor's fee, £150 to £200; title search fees, £150; life insurance, to repay the loan in the event of your death, around £160 a year. Additional charges can crop up, but can be queried - the indemnity bond premium, for example, in which you pay to insure your lender against losing out in the event of the house being sold at a loss. This is standard, says Vivienne Brophy, and can cost around £300; Richard Eberle advises that you should try to get it waived. At the very least, you can see if you can get it reduced. Some people might want to look at extra insurance to cover mortgage repayments in the event of illness/ redundancy - but this is expensive. Banks used to, but apparently now do not, charge a "mortgage arrangement fee". The point is, you should look carefully at all the extras, and ask if any are optional, or reducible.
IF you're buying a new home, things are simpler: not only do you get the first-time buyers' grant and not have to pay stamp duty, you have the builder's Homebond Guarantee as your insurance against problems with the house for the first 10 years. You should pay an expert to do your snag list, unless you have a friend - surveyor/architect/builder - in the business who'll do it for you. But nowadays, says Gerry Leahy of Leahy Property Consultants, most new houses come nearly totally finished, with walls decorated, bathrooms tiled, kitchens fitted out, lawns seeded and fenced, and so there isn't the old problem of paying the difference between a builder's tiling/paint/garden allowance and what it actually costs. You will, of course, have to find money to cover the floors - usually concrete downstairs, wooden upstairs.
If all else fails, suggest to your parents that they get off the stage and leave you the house now - it's best they do it during a property boom to maximise your inheritance.
TAB Guide 1999-2000, published by the Taxation Advice Bureau, is available in most bookshops, price £7.99.
