With demand for housing intensifying and the supply of credit still tight, buying your first home can seem like a monumental task. Knowing the mortgage lending rules, and what supports are available, can help make it achievable.
Under Central Bank rules, first-time buyers looking to secure a mortgage need to have a minimum deposit of 10 per cent saved. Loan-to-income limits also exist, restricting the amount of money you can borrow to a limit of 3½ times your gross income.
So, for example, if as a couple you have a combined income of €100,000, you can borrow up to a maximum of €350,000, but need a minimum deposit of €35,000 to do so.
The Help To Buy scheme helps first-time buyers to save for their deposit, providing a refund of income tax and deposit interest retention tax (Dirt) paid by applicants over the previous four years. It applies to properties worth €500,000 or under only, and you must commit to living there for at least five years.
First-time buyers who find they can’t get a mortgage from a commercial lender can apply for a loan from their local authority under the Rebuilding Ireland Home Loan, a new Government-backed scheme.
Available since February of this year, these loans can be used for the purchase of a new, or a second-hand property, or to build a home. With them, you can borrow up to 90 per cent of the market value of the property, which must not be greater than 175sq m in size.
Maximum market values vary depending on where you are buying, but the figure is currently €320,000 in Cork, Galway and Dublin, as well as commuter counties such as Wicklow, Kildare and Meath. Everywhere else it is €250,000. To secure this loan, your repayments must be shown to be less than one third of your household income. It’s open not just to employees but to those who have been self-employed for a minimum of two years too.
The interest rates on repayments are low and you can choose to fix for the full term, currently from 2 per cent fixed interest rate for up to 25 years (APR 2.02 per cent).
Cheaper options
The other big decision first-time buyers have to decide is where to buy. For most people, the choice depends on where they work, but changing work practices are opening up cheaper options.
Flexible and remote working is enabling people to live a greater distance from cities and, by and large, the further you go the cheaper the housing. What’s more, business of all sizes are increasingly renting space at regional co-working spaces around the country, allowing them greater access to talent and allowing staff greater freedom to choose where to live. All of this works to the advantage of first-time buyers in search of cheaper housing.
It means they can make their choice based on other quality-of-life factors, such as fresh air, outdoor pursuits, or smaller schools, in places where they get much more bang for their purchasing buck.
The most recent house price report from Daft.ie, a property website, shows average house prices in south Dublin at just under €600,000. In Leitrim, that figure is just €132,000.
The other good news is that banks are lending to first-time buyers. According to June figures from the Banking and Payments Federation Ireland, the number of mortgages approved is up marginally (+0.7 per cent year on year), with first-time buyers accounting for just under half (49 per cent) of all mortgages approved in June.
“Before now, many first-time buyers were still being put off by what had happened in the downturn in relation to negative equity and the tracker mortgage scandals, but they are coming back now,” said Arklow, Co Wicklow-based financial services broker Lorna Gammell.
For most, the hardest part is saving the deposit, plus the ancillary costs such as stamp duty and legal fees. “A lot who are currently renting are moving home to do this,” she says.
Competition is tough
With new housing stock slow to come on stream, competition is tough. “We’re back to seeing people queuing overnight for new schemes as they are released. In fact, developers are operating ticketing schemes so that buyers don’t have to sleep out. But demand is so strong that they require you to come to launches with not just your booking deposit but with proof of your loan approval too.”
All banks are lending “if you fit in to their criteria”, Gammell says. First-time buyers typically have youth on their side, which is important, now that 35-year mortgage terms are the norm. Lenders also prefer borrowers to be employed rather than self-employed. Ironically, given how much of first-time buying is driven by the need to provide more space for kids, having children goes against you too.
Though borrowers can apply directly to mortgage lenders, such is the amount of paperwork required that the services of a broker can be invaluable in ensuring your application is presented in the best light. Some will even attach a copy of your CV.
One thing will help you above all others though, says Gammell: “Save. Set up a savings account long in advance of your application and put money into it regularly, making no withdrawals. It shows them you can afford the mortgage, and that’s what they like to see.”
