Sean Corbett, Sales Director of Mortgage123 gave an interview on Property Matters on Dublin South 93.9 FM.
During the interview, Sean gave listeners some of his expert advice on how to prepare for a mortgage, particularly in a competitive property market.
How do lenders assess a mortgage applicant?
Sean emphasised that preparation is the key to getting a mortgage approval. He said the lenders will review the last 6 months bank statements for all applicants to see whether they properly manage their finances. To leave a good impression on a bank lender, applicants should show how well they can manage their finances, income and expenditure, over the 6 months prior to application.
In general, you need to show that you can afford the new mortgage payment, plus have some room for interest rate increases. For this, the bank will look at your savings (the increase in your balance from the start 6 months ago, to the closing balance), it will look for proof in your current account statement as to whether you are paying rent (to an unconnected party only), whether you are paying other loans that will be fully cleared before mortgage is issued, these will help you to afford a mortgage payment.
They will also look at other costs, you must have enough money to buy food and basics once you move into your new home, if you have children, you must be still able to provide for them and that reduces the amount available to pay the mortgage!Do you have loans that will not be cleared? Do you have other fixed commitments, such as pension contributions, family maintenance commitments etc.?
Your age will also affect how much you can borrow, most lenders will want a mortgage repaid by 65, so if you are 55, you have a much shorter term than a 30-year-old, this reflects in higher repayments and therefore can reduce affordability.
The lender wants to see that you are at least somewhat wise in your spending – no online gambling either winning or losing, no daily spend at the off-licence, no excess clothing expenditure. You should demonstrate that you operate your account and spending sensibly, do not go into regular overdraft and do not have missed payments or bounced cheques for 6 months.
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Have your proof of savings should you have saved your deposit, or some part of it. First time buyers need a 10% deposit, but lenders will allow this to be gifted if you can demonstrate other financial prudence.
The lender will also assess whether the property is suitable for mortgage purposes – is the valuation fair, has the valuer noted any concerns over condition, location, access or any other matter.
What’s different for Self-employed?
Sean also talked about what to do in the event that a buyer is self-employed. In this case, the last two years before looking to get a mortgage are crucial. This can be a very complicated area and Sean outlined the importance of finding a broker as opposed to simply going straight to the bank. He said that at Mortgage123, finding the right broker is made simple by providing a “live chat” option on the Mortgage123 website. This chat means that potential clients who are viewing the website can ask questions or make contact for a meeting by simply clicking the chat option.
Look into Switching lenders if you are paying more than 3% p.a.
Some of the other questions asked during the interview included queries regarding competition in the housing market and switching lenders if needed. Sean explained that in his experience, when it comes to rates, the competition is huge and there is a certain area of the market that is particularly competitive. In this case, the amount that it is possible to borrow varies greatly.
Sean also advised listeners to switch lenders if they are paying more than a 3% p.a. interest rate to the lender.
Are Exceptions likely to run out this year?
The general rule of thumb is that you can borrow 3.5 times your yearly income. Banks are allowed to make an exception and lend up to 4.5 times yearly income in certain circumstances. It is also important to note that lenders have a limited amount of these exceptions each year.
It is certain that the lenders will run out of exceptions, some may run out sooner than others. A broker is familiar with how banks work and which are more likely to make an exception for certain type of mortgage applications.