How to get mortgage approval in Ireland

Planning is key to making a successful mortgage application. It takes time to build up the required 10pc deposit to purchase a home and the six months prior to mortgage application is a key time to ensure you get your ducks in a row to be mortgage ready. 

What do I need to know about making a mortgage application? 

Understanding the three key elements of mortgage lending is essential when planning to make a mortgage application. These are – 

Income 

When assessing income a lender will be looking at the level of income to be taken into assessment but also the sustainability of your income. 

Under standard Central Bank lending rules a bank can lend up to 4 times allowable income for first-time buyers and 3.5 times for second and subsequent. What is deemed as allowable income can differ per lender and so there can be large differences between what one lender will lend and another. 

An example would be variable income such as commission, once proven over multiple periods there is a variance from 20pc being allowable to 100pc being allowable. 

If an applicant had €20,000 commission the additional mortgage amount this would add differs greatly between lenders, taking a first time buyer 20pc commission would add a further €16,000 to mortgage eligibility whereas 100pc commission being taken would add €80,000 to mortgage eligibility. 

Mortgage Brokers in Ireland offer market based advice this means they can offer multiple mortgage options.   

It is important to get market-based advice from a broker or research mortgage levels and options across multiple lenders. 

Sustainability of income is paramount for lenders, their ideal position is that a PAYE employee is in permanent employment and has completed probation. Self employed applicants should ideally be 3 years trading. Exceptions can be granted to these requirements depending on the overall strength of the application and circumstances. 

Mortgage Deposit 

Deposit requirement for all purchasers is 10pc and this can be made up of savings, gift or help to buy if you are a first-time buyer purchasing a new home. Want to know how much you’ll be paying back?  

Can the help to buy scheme be used towards my deposit to purchase a home? 

If you are a first time buyer and intend purchasing a new home then you need to make yourself aware of the two main schemes that are available to you. These are the help to buy scheme which is a rebate of tax paid over the last four years and gives 10pc of a purchase price up to ceiling €30,000 to eligible first time buyers purchasing new build homes to max value €500,000. 

This 10pc can be used as your deposit and means that many first time buyers can purchase without having to save the full 10pc. 

The first home scheme is another scheme designed to help first time buyers bridge the gap between the mortgage they are eligible for, plus deposit and the purchase price of a new home. 

Clear evidence of repayment capacity 

One of the most important elements of any mortgage application is demonstrating evidence of repayment capacity. 

At time of mortgage application, a bank will only issue approval if you can clearly demonstrate that the mortgage is affordable. They will take the proposed mortgage amount and will add 2pc to the current interest rate to stress test repayments ensuring that if rates increased that the mortgage would still be affordable. 

You might think that based on income you can afford to repay a mortgage, but the key point is can you demonstrate that. The banks look at the 6 months immediately preceding application to assess mortgage affordability. They will assess from savings and rent payments if you show that you can meet the proposed mortgage. 

Your mortgage will need to be paid each month and so when reviewing affordability the bank will want to see consistent savings and repayment capacity throughout each of the six months. Lump sum savings or depletion of accounts is not seen as favourable, consistency is key. 

Once you are clear on the above items then there should be no reason why you cannot make a successful application. 

Things to avoid when applying for a mortgage in Ireland 

Mortgage Application – Red Flags 

• Going to just one bank – when taking out a mortgage don’t just go to one bank, do your research or work with a broker who will offer market-based advice. The amount you can borrow, and interest rates will differ greatly amongst lenders. The lowest rate on the market is a 3.65pc rate, the highest is over 7pc. Choosing the wrong rate could cost you greatly. 

• Continue to show repayment capacity – do not skip a month’s savings, do not deplete accounts, do not set unrealistic savings goals such that you have to continue to dip into savings. Keep it simple, one savings account which you transfer to and do not withdraw from 

• Changing jobs – most new contracts will have a probation period of 6 months, banks in general do not allow a mortgage to be drawn down while an applicant is on probation. 

• Take out a large loan prior to application – this will in many cases reduce the amount you can borrow but might also mean you have to delay the application as the banks will want to see how you manage this new commitment 

• Missing loan/credit card payments – an adverse credit report can mean that a mortgage application is declined. If you are concerned that you may have poor credit history, is it always advisable to run a report on the Central Credit Register. 

• Overspending in the six months prior to application – even if you have your full deposit saved it is important to continue to show evidence of repayment capacity. 

• Thinking cash is king – do not think that it’s better to take cash out for spending rather than letting the bank see your Friday night out or shopping splurge. It is more difficult to explain large cash withdrawals. Provided you show the required evidence of repayment capacity the bank will not have an issue with your other spend, within reason! 

 This article is reproduced with the kind permission of Doddl. 

For more information visit www.doddl.ie