Are banks giving mortgages at the moment?

[realtin]

I rang BoI about two weeks ago enquiring about a first-time buyers mortgage. I was completely and utterly shocked by the amount they were willing to lend - it was 6.65 times our combined salaries!!!

it seems that they're still up to their ridiculously lenient ways

 

[lynchie1978]

My broker has tried one bank so far-kbc but has told me that it is kind of pointless going elsewhere as his colleagues in the mortgage game have said that banks are not lending. I thought i would be a good candidate for a mortgage as i am in permamnt work and have been for years now. my site is in a prime location in dublin 15 and has a conservative value of 200k-of course it is only worth was someone will pay so at the moment i am sure it is worht nothing! my plans are not for a mac mansion-but the house has a basement which adds significantly to building costs.
it has taken me so long to get to the satge of looking for a mortgage and i thought this was going to be the straigtforward part-wasnt banking of a banking crisis though. thanks for all the replies-please keep any ideas of advice coming-i am heartened to ehar that it is still possible to get a mortgage. I am also glad to get infomraiton about the reality of the banking sector at the moment. thanks again.

 

[allthedoyles]

Now banks are returning to traditional lending criteria, 3.5 times main earner and 1 times second, ignoring what went on since 1999,

So say a typical couple both earning 35k apply for a mortgage,
that puts the house price at around 150-160k, doesn't that look like a more realistic house price, not the 260k current national average house price.

So next question, where can one buy a house for 160k ?

 

[Senna]

you'll just have to wait awhile longer for prices to drop, they are dropping and WILL have to drop to a pre-bubble level which was around 3.5 times main earner and 1 times second. Of course if you dont live in a city then 160k will already buy plenty.

To those people that are going to brokers and being told there is no point in even trying, are you going in looking for €X or are you just looking what size of mortgage is possible. Have you considdered/tried approaching a bank(s) directly. If it were me i would start with AIB, then BOI, then EBS. Go in and see what size of mortgage you can get, of course if you aren't in very stable employment or you give the banks any other reason for doubt, you wont be entertained. Such is life.

 

[Bronte]

Young people need a start to get them going, and while I am all for sensible lending some of the tactics of the banks at present are nothing short of despicable.

What start do you think they should have. The best start is to have a history of saving, have a decent deposit and ask for a sensible amount. I agree with Senna that until house prices are back to a normal multiple of the average industrial wage banks won't be lending.

 

[Yellow Belly]

What start do you think they should have. The best start is to have a history of saving, have a decent deposit and ask for a sensible amount. I agree with Senna that until house prices are back to a normal multiple of the average industrial wage banks won't be lending.

Nice ideology in Utopia! I actually agree with you re property being a lower multiple of the average wage but then again I think both of us are already on the property ladder so we can have the "holier then thou" attitute- can't we!

For a start there is NO lender using the "multiple" method of assessment for mortgage applications as this method is as crude as a blunt knife & makes no reference to the other borrowings of the applicant. All lenders now use a "percentage of Net monthly income" & in most cases rule that 35-40% is the max that the borrowers should be paying in monthly repayments. This is a far more equitable, and realistic method of assessement.

Like I say it would be great if people could find property for 3-4 times the average wage but then again it would be great if I could find the site for my home again for €5k!!!

In any event for anyone whom has any serious involvement in the property/finance market it has been a combination of the investors & interest only finance who destroyed the market- not people purchasing property to live in themselves.

The property market was dead in 2002 as up till then mortgages (whether for investor or owner occupier) were capital & interest. At that time the rents achievable were less than the mortgage (cap + int) so investors were pulling out of the market. All of a sudden (post 9/11) interest rates drop to 2% & the banks bring in interest only finance so the valuation method for property changed- now with cheap money & only having to pay the interest investors could purchase property & have money left over having paid the interest so of course everyone piled in!!!

Fast forward to 2006/07- property values had increased at such a speed that the rent would now not cover even the interest------ooppps! Here comes the car crash!!! BANG!

FTB's & owner occupiers did not drive this "bubble" they were merely "infected" by the disease carrying investors (I was one of them). The increased demand in the market by instaiable investors drove the prices artificially high so when one is looking for the reason that the whole thing came crashing down the FTB's & owner occupiers should be the last to be blamed- they merely did what they had to do, or borrowed what they had to borrow just to get somewhere to live.

 

[Bronte]

I take issue with your last point. You forget that people didn't have to buy at all. Interestingly I see the gardai are now in on the blaming of others act. They are in permanent pensionable employment and apparently in arrears with their mortgage and want help.

The OP in this situation can save for another year and apply to a bank when things are more settled and may actually be back on here in a year's time saying it was the best thing ever.

 

[Yellow Belly]

People didn't have to buy at all? What a bastion of wisdom you are! Where could they have lived for the last 5 years then?

Save for another year? How will this be possible for someone who is renting (and therefore theoretically paying someone elses mortgage during this period)

Blame? I am to blame for the property bubble as is every other investor over the last 6 years! Was it not investor demand which drove the property market? How many people were "part time" property moguls? I am not seeking to blame anyone in particular but I am honest enough to point out where the flaws were created in the market.

It is a bit rich to declare that "people didn't have to buy at all" with the 20/20 vision of today.

 

[gurramok]

I'd say based on the special 1st year deal they are doing for first time buyers i'll be putting a just under a 3rd of my take home pay into the mortgage but it works out at only 100 euro a month more than what I'm paying for rent at the moment.

God help you when that rate increases in a few years to a 'normal' 4%+

 

[Bronte]

So yellow belly you think people should not have to save before they buy because they are paying rent? What's wrong with renting for 5 years, lots of people do? I don't buy into this myth of it's the investors who pushed up prices and forced the poor first time buyers into purchasing overinflated prices for property. Whoever individually thought it was wise to purchase property at many many multiples of income on 100% mortgages, with credit card debt, car loan payments and overdrafts should really have asked themselves if they could afford the new house, fully kitted out, timber flooring and garden laid to lawn etc should really ask themselves the question, who forced me into this situation of a massive mortgage on a decreasing asset. And the answer is themselves.

 

[sadie]

Well in fairness to everyone - this borrowing at a massive 10 times salary was 'normalised' by the Banks. The wonderful First Time Buyer was held up on some sort of pedestal as doing their civic duty by buying a house as soon as they had done their Leaving.
So although yes, it was a free choice by individuals, let's say the environment was being greatly massaged to encourage choices of a particular kind.

 

[Yellow Belly]

Personal Opinion- but I see very little wrong with someone borrowing 100% of the cost of a house (for owner occupation) provided it is on a capital & interest repayment basis. At least on this loan the borrower will have the loan paid off at some point in the future.

Main Reason Why Property Market Imploded- interest only finance- the original NEVER NEVER. The capital amount borrowed will NEVER be paid off until the loan is reverted to capital & interest. This form of finance nurtured the speculative element of the property boom as it made finance look less expensive than it really should be.

Resonaning for this opinion- property is historically a capital "appreciating" asset. This I suppose should also have the prefix- appreciating IF you hold it long enough. If someone needs a home, I see no problem with them borrowing 100% of the cost as over the next 20 years this property should increase in value. Yes they may have an initial period of negative equity- but then again negative equity is a state of mind rather than a financial cost. How many people borrowed 100% of the cost of their car- a depreciating asset? Andf I have never heard any complaints regarding this which is mathematical disaster.

Interest only finance is the biggest culprit in bringing the Irish market crashing down not 100% mortgages. The 100% mortgages mean that more people than were necessary are now most likely in negative equity, however it was interest only which fed investors like cocaine to an addict.

 

[JiggetyJig]

We were recently approved in principle for 3.9 times our combined salaries. (could have got approval for 4.2 times) We have 3 kids. I am being let go from my job this week - my salary is about 1/5th of our total salaries.
So today I was talking to the bank about what affect this would have on our application. I asked if they could recalculate what we kind of mortgage we could now qualify for. They obviously forgot we had kids because the reply I got was a figure that was 5.8 times OH's salary!!!!! Crazy!!
There is no way I would consider taking that kind of mortgage! I like to eat too much! But adding to Realtin's comments, it seems banks (when they do approve a mortgage) have still lost the run of themselves!
OK now off to get something to eat!

 

[Senna]

For a start there is NO lender using the "multiple" method of assessment

I dont think anyone is thinking the multiple method is the only assessment needed, but it gives a much better indication of what a bank should be lending rather than the 35-40% method. Banks left the multiple method as interest rates were falling and so the percentage method meant more money could be lent. The problem with the percentage method is it depends on current rate and stress testing, which i'm sure everyone will agree was not strict enough during the bubble.
With the multiple method it give a better base for lending and is not so depended on low interest rates.

Personal Opinion- but I see very little wrong with someone borrowing 100% of the cost of a house (for owner occupation) provided it is on a capital & interest repayment basis. At least on this loan the borrower will have the loan paid off at some point in the future.

100% mortgage certainly were not the cause of the bubble, but there were a reckless lending practice. Having a deposit means that the buyer has equity in the house from day one (assuming the market is growing) meaning the house could be sold easier should problems arise and it proves a history of saving. The availability of 100% mortgage meant many people (mostly FTB's) were able to wake up one morning and think, today i'll buy a house, it really was that simple during the boom. Were as working towards a goal of buying a house gives the buyer more time to consider the purchase and allows more time for research into the market. Research into the market could have avoided many foolish purchases during 2005/6/7.

I would agree on your interest only views, the market was fuelled by investors and greed. Even this website advocated the use of IO and even told people NOT to pay off capital, but thats of another day.

 

[Dreamerb]

I would agree on your interest only views, the market was fuelled by investors and greed. Even this website advocated the use of IO and even told people NOT to pay off capital, but thats of another day.

Whoah there! It's perfectly sound advice to recommend that investors use interest only. It's for tax planning purposes. The advice wasn't "Ah sure go for interest only and that way you can spend a whole lot more and only worry later about whether you may be over-extended". It was about minimising tax liability (often coupled with advice on investing the portion of rental income in excess of financing and operating costs to achieve maximum return, or sometimes to pay off more expensive borrowings). Used sensibly that's still the best way of dealing with an investment property.

Home-buyers, as distinct from investors, should (IMO) generally not take interest-only period for anything more than a few months at a time, for budgetting purposes; it's a tool which can be used to budget for particularly expensive or low-income periods - say, immediately after purchase of first home, 3 or 6 months to allow for furnishing / fitting out expenses, or to cover periods of maternity leave. Or increasingly, to give breathing room if a buyer loses his/her job. Ideally, it should not be necessary for a home-buyer to take interest only periods but there are all sorts of situations where it can provide a valuable respite for people who have been financially responsible in the choices they've made.

 

[sadie]

JiggetyJig, when you said you got Approval in Principle, do you mean you actually got an official letter from the Bank for 3.9 times combined salaries, having submitted all your payslips, statements etc?

 

[Bronte]

There is another point about having a deposit rather than being given a 100% mortgage. It makes the purchaser think about spending their own money as opposed to the banks money. That always make people have more sense.

And I agree with Dreamerb on investment mortgages being interest only where there are sound financial and tax reasons for having one. Personally I don't like them.

 

[JiggetyJig]

Sadie - yes - approval from the bank after all payslips, etc submitted.

 

[Yellow Belly]

Guys the multiple of income is flawed- and has been proved to be so- that is why all lenders switched to the net income ration method.

If someone earns €50k per annum & they can borrow a multiple of 3 times salary they would qualify for €150k mortgage- however what happens if they have a €25k car loan, €10k on credit card & €5k personal loan- how are these reflected in his approval?

The net income ratio method is recognised as the fairest assessment of ability to pay as this takes someones net monthly income, takes a percentage (usually 35-40%) which can be used to repay ALL loans including mortgage. Effectively if someone has other short terms loans then this reduces their borrowing capability.

In any event if you guys want people to have the ability to borrow only to 3 times income, you will effectively bankrupt the entire country. Your idea would have been welcome approx. 1996 but unfortunately there is no point in closing the stable door when the horse is way down the road. The effect of your draconian borrowing proposals would be a very effective way to cause the following:

* Place every property purchased since 2001 in negative equity
*Reduce the pent up VAT due to the state by almost 50%- and boy could we do with the maximum revenue at the moment
*Force trade unions to seek massive pay hikes (so that their members might be able to buy a home)
*Bankrupt every builder/developer/sub contractor/DIY store/Builders Provider & most probably all bank as well- indeed even the breakfast roll seller would go down!

To be honest this whole "reckless" lending issue is oversold at the moment & smells of "the bandwagon" approach. The Irish banks have always had a far more conservative approach than many other 1st world countries- yes as in all systems there have been some terrible lending decisions but overall the Irish mortgage market IS relatively stable. Most of the repossessions (which is a tiny percentage of the loans taken out) are in favour of "Non Status Lenders" such as Start who should never have been given a license to operate by the Financial Regulator in the first place. Most repossession orders from the main stream lenders are actually in relation to investment properties (where the investors just wish to walk away), and in other situations where people may have lost their jobs- no matter what method you have used for loan assessement if that persons income reverts to zero then this will be a problem anyway.

If we assume that the "average" wage in Ireland is even €35,000 then at 3-4 times this amount i.e. €105,000-€140,000 where exactly are people going to find property to purchase? We have got to be realistic?

 

[NorthDrum]

Debt - Service ratios are being used (ie ability to repay and live an affordable life) more then the "times salary" ratio.

For example bank of Scotland want to see people left with between €1500 (single applicant) to €2200 (couple) in their pockets after their mortgage is paid.

People should factor in interest rate increases when deciding whether or not to take out a mortgage.

I have been told I can get up to €210,000 (possibly even €220,000) on somebody on an income of €34,500 .

Its not set in stone, but my broker consultant seems to believe that it has a good chance going through. Client will be looking for just below 80% LTV. They may not require full amount and are in a very strong employment position.