Your mortgage questions answered by the Irish Property Buyers’ Handbook 2014 and guest contributors
What are the different types of financing available to house buyers?
Karl Deeter: Credit comes in two general forms, secured and unsecured. Unsecured lending is personal advances where there is no asset backing the loan, this would be credit union loans, credit cards, etc. Some houses sell for amounts so low you could use a credit union loan to buy them! In general though house purchases are via a mortgage which is secured lending, this means you take part in two simultaneous sales, you buy the house (sale one) and then effectively sell it to the lender in exchange for the money to complete the purchase (sale two) and this creates a first lien or ‘first right’ to the property for the lender.
Is it easier to secure finance for an existing house than it is for a self-build or a home improvement project? What tips can you give prospective self-builders and home improvers to be successful in their application?
KD: A lot of one-off housing is where land is gifted to a child and in those cases as long as you have an architect, fixed price contract and planning it’s fairly straightforward. The main thing people need to do is be financially transparent, make it easy for the bank to say ‘yes’ by having good savings and doing as little in cash as possible so an underwriter can have a comprehensive view of what you are doing with your money. In particular for self-employed people who work in cash businesses, you’ll need to lodge money to show it and the bank will work off your revenue balancing statement (called a P21 form in ROI).
Carol Tallon: In my experience, mortgage lenders are still cherry-picking both applicants and properties. As they involve stage payments, self-builds and home improvement projects are arguably their least favourite type of lending at the moment. However if one of the mortgage applicants is in the trade and has demonstrable experience, this will definitely add weight. For inexperienced self-builders, having access to a competent team will help – the key is to show clear ability to deliver the completed home within the planned budget.
As with every mortgage applicant, prospective self-builders and home-improvers will need to have a strong record of earnings and as little personal debt as possible.
In their wish to create their dream home, self-builders often forget about the lender’s back-up plan, i.e. if life does not go according to plan, what will the bank be left with and how will they re-coup their lending? At the moment the Irish landscape is littered with the remnants of dream homes that are in the hands of the banks.
How do banks protect themselves from negative equity when it comes to renovation projects?
Templeton Robinson: When arranging initial funding lenders are usually conservative over the final value of the house and the buyer normally has to put up a percentage of the money, 20% is common, so the lender is not in it for the full amount and they get their money back first. The lender is also likely to retain a portion of the last stage payment until such time as their valuer ascertains that the market value of the house is the same or more as what’s been put into it.
Are there any differences between rural and suburban or urban sites to secure financing?
CT: While bank policies might not state it, there certainly appears to be a bias in favour of Dublin and against rural locations.
KD: Values differ, there are restrictions in lending when you have rural apartments versus urban apartments and often lenders will seek a lower loan to value (LTV) for rural properties. The nuances normally surface when you get talking to the banks; while there’s no ‘set rule’ they are certainly dealt with differently.
TR: Not in NI. The financing will depend upon the value of the site, so long as this is correct the actual location doesn’t matter. However houses in popular urban neighbourhoods are very scarce, particularly in the Greater Belfast area. In rural areas there’s very little interest, property is sitting there and there’s a lot of it.