With rents continuing to soar in Ireland and in particular in certain parts of Dublin the dream of owning a home remains as strong for most people as it has ever been.
We could have had what we believed to be a very strong mortgage application declined on the basis of new lending parameters. The rules were constantly changing and evolving in a world which was also changing dramatically day by day. That was our working life then... so how different a scenario is it today?
I would say it is a completely different scenario as according to the banks and our own Central Bank, they are well capitalised.
You would anticipate that when the world returns to some level of normality, there will still be a demand for property. But for now we are dealing with a completely different lending market in exceptional times. Here is a quick explanation of how we see the market at present and how we see things unfolding.
Are the banks accepting new applications?
The banks are accepting new mortgage applications; however applications will not be considered where the income has been impacted by Covid-19. You will not be able to apply for a mortgage at present if you have lost your job or you are on reduced wages. Also, if your employer applied for the Covid Employer benefit, and you are receiving this through your employer, you will unfortunately not be eligible at present. You may well be earning the exact same salary as before, but if your employer is receiving assistance in order to pay you, the Banks unfortunately will not consider you for a mortgage in the current climate (excluding Finance Ireland). If you are self employed they will request that you provide business bank accounts outlining no drop in income (they will likely look for confirmation from your Accountant to confirm this).
But I’m grand; I already have an “Approval in Principle”?
Maybe not. Again the lenders are looking for employers to confirm that they have not been affected in any way by COVID-19. If they have been affected financially by COVID-19, then their approval will last until the date on the original approval letter. At that stage if they have not returned to full salary, or do not qualify under the Banks criteria, the approval will be deemed as being unused and therefore the client will have to reapply .
I am due to close on a property in the next while?
Firstly you need to make sure that the Valuation has been completed and has come in at the price you have agreed to purchase the property for. I for one would find it very hard to value a property at present due to uncertainty in the market, but that is not my area of expertise.
Once the valuation has been completed the lenders are looking for confirmation that the income has been in no way affected by COVID-19.
If it has you will not able to close until your income returns to the level it was approved at.
Our Wages are unaffected by COVID 19, is now a good time to apply?
Well it is and it isn’t. As you may or may not know the Banks are allowed go outside criteria for 20% of cases as per the Central bank rules. Outside criteria means over 3.5 times income (3.5 times income is standard). However in the last few years the banks have given out exceptions earlier in the year and then for the remaining months that year, stop offering them or give out very few. This year is no different except the lenders may struggle to balance their books, so as of today they are not offering any mortgages outside criteria. So if you are looking for an approval and think there might be value in the market in the coming months you will get 3.5 times salary and no more.
My earnings have been affected by Covid-19. Will this make a difference when I go to apply for a mortgage in the future?
There are two scenarios that will need to be considered here. The first is will you return to your old salary when the pandemic passes? If so, you would hope the lender will assess you at this salary and does not punish you for a reduction in wages, which is in no way your fault. Another thing that a bank considers when assessing your mortgage application is “proven repayment capacity”. In simple terms over the last 6/12 months you have proved to them that you can make your requested mortgage repayments. The proof they require is the average you have saved and paid in rent over the last 6/12 months. If this matches or is above the new mortgage repayment, then you tick this box. The problem we can see is reduced wages or no wages at all. This will lead to people not meeting the 6 month average required. Another problem we envisage is the lenders insistence on applicants having 6/12 months continuous employment. This criteria will be hard to meet for some, as many people have been made temporarily unemployed.
I’m self employed. How will I fare out?
Self employed applications are assessed with an average income based on the last 2/3 years of declared earnings. This average income may be negatively affected for 2020 which will drag down any 2 or 3 years earnings average way down.
Overall lenders will have to look at their criteria and some flexibility will be required if they are to continue lending.
I am struggling to pay my existing mortgage
The lenders have recently extended the Deferral Scheme and if you think your income is still going to be down or non-existent, you should contact your lender directly and seek a 3 month extension. A word of note, the lenders have embraced this scheme and it appears to be a simple process, however, this is a deferral of payment and is not free money. You will pay for it over time. In a time when most incomes are down this scheme has been a welcome relief to people at risk of defaulting. It has taken away some of the financial stress and pressure in the short term, which can only be a good thing.
Having dealt with mortgages over the years, it’s very apparent that every case, client and lender is different, so if you have any queries about your own circumstances, feel free to give our mortgage protection broker team a shout on 086 229 3032 or drop us an email at rob@citywidefinancial.ie
Rob O’Neill
CEO Citywide Financial
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