Getting mortgage ready? Things to consider

Whether a first-time buyer (FTB) or a second-time buyer (STB), starting the mortgage process can seem a daunting task. Engaging with a mortgage broker as early as possible will make understanding the process a lot easier.

As of 1^st January 2023, the Central Bank of Ireland has relaxed the rules on how much a first-time buyer and second-time buyer can borrow.

• FTB can secure a mortgage of up to 4x income and 90% loan to value.
• STB can secure a mortgage of up to 3.5x income and 90% loan to value.

With low supply and high demand for property in Ireland, this has driven auctioneers to look for applicants’ mortgage approval before allowing a property to go ‘sale agreed’. Therefore, it’s important to engage with a broker before you start the process of viewing properties so you can ensure you are ready.

When assessing affordability there are 4 key elements that your broker will look to identify and provide guidance on.

Income and employment status

Your current and previous employment status will dictate the documentation that is required.

For a PAYE worker, you will need to be employed for a minimum of 12 months and have passed probation. You will need to evidence your income by way of a salary certificate, payslips, and your most recent employment detail summary (formerly called a P60).

For a self-employed applicant, you will need to have been trading for a minimum of 2 full years and be able to provide 2 years’of financial accounts and tax returns.

Deposit

The minimum deposit required is 10% and this can come from a few different sources:– cash savings, family gifted funds, and Help-to-Buy (for FTB proceeding with a new build or self-build property).

Top tip – saving into a separate account that is specifically for building a mortgage deposit is advisable.

Financial commitments

Any financial commitments that will continue after the purchase of the property need to be included in the assessment to ensure there is sufficient income in place. In some cases, your monthly loan repayment may reduce the maximum mortgage you can secure.

Each lender has a different tolerance when it comes to ongoing commitments, so speaking with your broker will guide you to the most suitable lender. Equally may guide you to whether you are indeed ready to proceed for a mortgage right now.

Repayment capacity.

This is an applicant’s ability to evidence to the lender that they can make the monthly repayment. The lender wants to evidence that you have been able to make similar payments previously and will look to the previous 6 months leading to your application. For a first time buyer, the most common form of repayment capacity is regular savings used to build the deposit and monthly rental.

For an applicant that doesn’t have any repayment capacity now, the best advice is to open a separate savings account that is specifically for this purpose and save for a minimum of 6 months.