Today, with property prices surging across the country, a common question that arises is whether now is the right time is to buy. There is no set answer to this. Instead, prospective first-time buyers must ask whether this is the right time to buy for them. Whether or not they are at a stage of their life that makes homeownership the right decision now. So, rather than it being a question of timing in respect to property prices, it should be as much about time in respect to their life stage.
For prospective first-time buyers, there is a lot of competition in the Irish market for their business. According to the latest mortgage data, they make up most mortgage drawdowns.
We know that everyone’s been feeling a bit shook up these past few months, so we want to make sure we help you answer the many questions and queries you will have about buying a home in Ireland so it’s one less thing to worry about.
In broad terms, the first-time buyer process can be intimidating for those that are just embarking on the process. So, to make it all a little easier, we have broken down the primary staps along with the main actions needed to complete the process.
First-time buyer definition – one can never have owned a property in Ireland or anywhere in the world.
Deposit – the Central Bank Rules on mortgage lending require first time buyers to have at least a 10% deposit. This means that they can borrow up to 90% of the value of the property. This can come from savings, parental support, the Help-to-Buy Scheme or even the site value if the property is going to be a self-build. While each of the above draw additional scrutiny, we won’t delve into those in this article.
Mortgage application – generally, lenders are permitted to lend up to 3.5 times the applicants income. And while lenders have some discretion on the application of the income multiple rules, it’s a broad rule that first time buyers can use to estimate the range of their borrowing ability before they go down the route of a more formal mortgage application.
Approval-in-Principle (AIP) – this is mortgage approval subject to various loan conditions, the most significant that the applicant finds a property. It can also include other stipulations that where an applicant, for example is in a workplace probationary period, they successfully complete it before the mortgage is drawn down. In other words, the lender is giving a strong indication that they are prepared to lend to the applicant provided some final conditions of full approval are met.
Property search (and deposit) – the most practical approach to a meaningful property search is to begin one when one is confident, they can secure a mortgage. This is especially true when it comes to putting down a deposit on a property. What one should avoid at all costs is investing their time and money in a property search if they fail to secure mortgage approval later for any number of reasons.
Documentation – mortgage lenders will require all standard anti-money laundering documentation, including recent copies of utility bills, photo identification, recent bank account statements and, access to their personal credit report (the Central Credit Register). Where applicable, they will also want to see evidence of having valid and up-to-date work permits.
Fixed or variable mortgage – this can be a personal choice. There is no right or wrong. However, as many first-time buyers often express a preference for set mortgage payments during the initial years after first drawdown, a fixed rate mortgage is best positioned to deliver on this need. One thing to keep in mind with fixed rate mortgages, the amount that one can overpay them by is generally set at 10% whereas there are broadly no limits on overpayment on a variable rate mortgage. This can be an important consideration for some people that may be exploring very long fixed-rate mortgage options.
Mortgage protection (and home insurance). Both are required by lenders. In the case of a mortgage protection policy, this is a Life policy that is designed to repay any outstanding balance on the mortgage in the event of a borrower dying. Mortgage applicants can shop around for the best deal in the market and are not required to take out a policy with a firm that has links to the mortgage lender directly. A broker can often facilitate a whole-of-market review for the best and most suitable options.
DIY or broker – when it comes to getting a mortgage, most people can carry out much of the mortgage application on their own. However, there is an increasing trend towards non-bank lenders in the Irish market as a result of the impending departure of both Ulster Bank and KBC. In their place are non-bank lenders that do not have the physical presence across Ireland to either engage, nurture or directly facilitate mortgage enquiries. So, they rely on mortgage brokers to locate, process and support an increasing number of mortgage applicants. Many mortgage brokers may look to charge a processing fee and whether they all do, prospective applicants still need to enquire as to the amount they could be charged.
Solicitor and legal fees – these are unavoidable. However, one should still shop around for best value from a range of firms that specialize in the home buying process. Between the standard property conveyancing costs (title registration etc.) and additional solicitor fees, factor for a few thousand euro.
Structural survey – this is a survey as to the general physical integrity of the property. While not a condition of a mortgage application, it can be a great investment for those looking to buy a home. The structural survey can cost €300 – €400 (or more) but it can be money well-spent as it can identify possible property defects that should be remedied before purchase.
Finally, buying a home forms one of the four main pillars to building personal financial wellbeing. The others include having a sufficient emergency fund, having sufficient protection in place and finally, investing into a personal pension. In other words, one needs to have balance and where possible, try avoiding putting too much of one’s financial resources into just buying that home. While it will become a major personal asset over time (as the mortgage balance reduces and the value of the property increases), it can also be a very inflexible form of personal wealth that is difficult to access.