Loan Information

Currently there are 12 Irish and overseas lenders operating in the Republic of Ireland offering loans in the home, residential investment and commercial property sectors.

These lenders vary in their rates, income requirements, borrowing limits and products.

Please use the links below to navigate through the information:

Borrowing Limits
Loan types
Mortgage Interest Rate Options
Mortgage Costs
Loan Time Frames

Mortgage Information

· Borrowing Limits - what is the maximum loan I can borrow against a property ?

Most lenders currently allow up to 92% loan for first time borrowers against the purchase price of the property. If you have other assets, you can leverage to obtain over 100% loans. Assets such as shares, other property or cash resources can be leveraged or offered as additional security to make up the balance. With switching mortgages, most lenders now operate a maximum 80% loan to value. Some have a threshold of 50% loan to value. With little money to lend in most banks and building societies during 2009, limits have been steadily reduced.

· Income and age requirements

All lending, of whatever type, is based on the ability to pay. This ability must be proven. Nearly all the lenders have different criteria when it comes to working out your income/s and what you are eligible to borrow. Lenders generally do not want to see that all your disposable income is going on financial repayments. There are two BASIC methods of calculating your eligibility for a loan approval

o MULTIPLES - currently 4.5 times your income, and if applying with a partner, 4.5 times your combined income. Some lenders allow 5 times income where that income for a single person
exceeds €60,000

o NDI – where your total financial commitments including this one must NOT exceed c. 35% of your Net Disposable Income ( your after tax deductions income )

Again some lenders allow certain percentages of overtime, commission and will take in certain extra curricular income (such as part-time night work) With all these, there has to be evidence of consistency and in all cases, would have to be corroborated.

Most lenders allow home loans up to the age of 65 while there are still a few offering up to age 70. Only with loans for the over 60s – lifeloans - are there no age limits. Generally if self employed or sole trader, longer loan terms are allowed, possibly up to age 75. Email me for details.

The Rent a Room Allowance, tax free, of up to €10,000 per annum allows certain lenders to facilitate additional borrowings.

REMEMBER

1. If you have current borrowings, the lender will subtract a full year’s loan repayments of those borrowings from your annual income to determine what you now can borrow.

2. For EVERY loan applied for, the lender will ALWAYS check your credit history with the Irish Credit Bureau (ICB, Newstead, Clonskeagh, Dublin 14 tel 01 – 260 0388 )
Back to top...

· Loan types

1. Repayment / Annuity

This is a loan repaid over a certain agreed term. Interest on the loan and the capital (the amount of money borrowed) is repaid in equal monthly / weekly repayments over that agreed term (loan terms with certain lenders can extend up to 40 years.) The average mortgage term is 25 years

Interest is greater at the start of the loan repayments and as the capital is repaid over the period of the loan, the interest reduces. The repayments are evened out over the term of the loan and as long as repayments are made, this type of mortgage is guaranteed to be repaid at the end of the term. It is also the most popular type of mortgage. Warning: The cost of your monthly repayments may increase - if you do not keep up repayments you may lose your home.

2. Interest only loans

This mortgage option is now virtually unavailable in the market. With this system, no capital is repaid (that is, on the original amount borrowed) and interest on the amount outstanding is paid on a monthly basis. At any time and generally at no cost, you can
• pay off lumps sums (while the mortgage is in variable interest rate mode)
• switch back to a capital and interest system ( the Repayment mortgage )

At some stage however, the capital must be repaid at either the full term or swapped back to a capital and interest repayment during the term to coincide with the original loan agreement : provision can be made for this capital lump sum owed and payable on maturity through

• A pension plan (maturing at 60/65 ) which then repays the capital originally borrowed.
• An investment plan (for the term of the mortgage, like the old style endowment mortgage) that also repays the capital on maturity.
• Selling the property (after a number of years ) and repaying the loan.
• Switching back to an annuity plan (capital and interest repayments over a new agreed term) with a defined term to pay back the capital.
• Passing the property onto your estate where the loan is either renegotiated or repaid by your beneficiaries
• Winning the lotto.

However you have the choice of repayment method if the term negotiated on the interest only loan is for the full term . A mortgage protection insurance policy must be taken out so that if the applicant/s dies, the mortgage, i.e. the outstanding capital borrowed, is repaid immediately. Life cover here is mandatory on home loans, but if there is a medical issue or you are aged over 50, you may waive this requirement. For residential Investment property loans, life cover is not mandatory but advisable.

Warning: The cost of your monthly repayments may increase - if you do not keep up repayments you may lose your home.
Warning: The entire amount that you have borrowed will still be outstanding at the end of the interest-only period.

3. Pension - backed mortgages

Similar to the investment type mortgage, the capital is not repaid until pension age (60/65 if self employed) has been reached. The most attractive feature of this mortgage is the tax relief received from the pension contributions at whatever level of tax being paid ( currently 20% or 41%).

On maturity, 25% of your pension fund is available as a tax free lump sum and this is the amount together with the taxable 75% of the fund that should repay your mortgage.

Therefore, the contributions are geared towards making the sum borrowed equate with the 25% tax free lump sum and encashment of the balance (75%) at your marginal rate of tax on maturity of the pension plan.

The pension - backed mortgage is becoming increasingly popular particularly with the self employed and commercial buildings, and generally a lender would want double the borrowings as a fund maturity value e.g loan of €200,000 would have to have a value on maturity (pension age) of €400,000

4. Sub prime (Specialist) loans

The original cause of the credit crunch, these lenders took over adverse borrowings, consumers who had one or two blips on their credit history. Start up business owners were also catered for where there was no track record of their credit history. Income was also self assessed with most of the operators. As of January 2010, the only operating specialist lenders are Start Mortgages.

5. Loans for the over 60s

There are a number of “lifeloan” lenders. Essentially, this is a facility for consumers over the age of 60 who wish to take out “equity” or value in their home, and sort out the interest and amount borrowed after they pass on through their estate beneficiaries.

· Borrow up to € 200,000

· 3 different types of loan calculations

· No interest or capital is repaid

· When all parties to the loan have passed on, settlement is made

· Rates tend to be on the high side ( e.g. Bank of Ireland use a 15 year fixed rate – effecting a 100% increase in the debt every 10 years )

Money Doctor is happy to advise on all aspects of these transactions. Please email .(JavaScript must be enabled to view this email address)
Back to top...

· Mortgage Interest Rate Options

1. Standard Variable interest rate mortgages.

The interest rate on the mortgage varies according to the economic conditions and actions taken by both the European Central Bank and Irish fiscal policy. Variable rates are determined by the cost of money (European Central Bank base rate) plus the lender’s margin.

Most of the lenders offer discounts on these variable rates e.g. c. 1% below the variable rate for a period of 6 -12 months. At the end of the discount rate, the normal standard variable rate applies.

If you wish to pay off your mortgage, there is no penalty if the rate is variable and for a small vacate fee (€100 - most lenders do not charge anything) you can switch into a fixed rate if desired. Variable rates are subject to the vagaries of the current market rates and would be less certain than fixed rates.

2. Fixed rate mortgages

Loans are fixed for certain periods (from 1 to 20 years) during the term of the mortgage. The advantage is that the repayment is fixed for that period and therefore certainty in your repayment schedule.

If a fixed rate loan is being repaid early there can be a penalty of up to 6 months interest. This can be avoided if the borrower is just moving home as the lender will usually carry forward a fixed rate to the next home loan. Alternatively, you could wait until the end of the fixed rate term. Warning: You may have to pay charges if you pay off a fixed-rate loan early.

3. Other options

One is the Current Account style mortgage now popular in the UK. Your mortgage can be treated like a current account, putting in lump sums, taking out short term requirements, holding off payments in reduced-income periods and having a far more flexible approach to home lending. As of March 2003, Permanent TSB (One Plan) and since 2008, Postbank’s Everyday Current account operate current accounts.
Back to top...

· Mortgage Costs

1. Legal costs

• Your own solicitor conveys the property for both the borrower and the lender. The fees are generally 1% of the purchase price plus €127 plus 21% VAT. Shopping around usually can bring results.
• On top of the fees, there is legal outlay. This covers searches (this ensures your property is registered correctly and that the vendor is the proper owner) stamping fees - see PDF file on the Money
Doctor Forms page that lists all the possible outlays.
• Check with Money Doctor for updated details of official discounts on legal fees.

2. Valuation

• Most lenders have panels of valuers - either auctioneers, architects or engineers - whereby the property being used as security is valued professionally.
• The costs can vary depending on where the property is, but again generally as a rule the fee is €130 for the average price property for a simple valuation.
• Where the property is in need of major repair and requires a more detailed report, the lender will call for a structural report. This is more expensive because of the detail and time required and could
cost between €200 to €600

Also remember for all properties being rented or sold, a Building Energy Rating ( BER ) certificate must be available. This will allow prospective buyers or tenants to factor energy performance and costs into their comparison of different properties and into their ultimate decision of whether to buy or rent. It should also enable self-builders to make amendments at design stage to improve the energy efficiency of their home.

3. Indemnity Bond

This is an insurance policy, a once off premium that in the event the property is repossessed, sold and the lender’s loan is not covered by the sale, this insurance policy pays the difference between what you actually borrowed and the original 80% valuation of the property. This is a once off payment and all lenders actually pay the premium themselves. Under 80% borrowing does not require an indemnity bond.

4. Stamp Duty

First time buyers

First time buyers are exempt from stamp duty on new and second-hand houses and apartments.

Not a first time buyer

Since 5 December 2007, stamp duty rates on new houses and apartments with a floor area more than 125 square metres and a Floor Area Compliance Certificate:

Property value	Owner occupier
Up to €125,000	Exempt
Next €875,000	7%
Balance	9%

Since 5 December 2007, stamp duty rates for second-hand houses and apartments for owner-occupiers (and investors buying new or second-hand houses and apartments):

Property value	Rate
Up to €125,000	Exempt
Next €875,000	7%
Balance	9%

Rates of stamp duty on land/housing sites without residential buildings and ALL commercial properties:

Property value	Rate
Up to €10,000	Exempt
€10,001 - €20,000	1%
€20,001 - €30,000	2%
€30,001 - €40,000	3%
€40,001 - €70,000	4%
€70,001 - €80,000	5%
€80,001 - €100,000	6%
€100,000 - €120,000	7%
€120,001 - €150,000	8%
Over €150,000	9%

First-time purchasers of all residential property and other owner-occupying purchasers of new residential property under 125m2 are exempt from stamp duty. Other owner-occupying purchasers of new residential property over 125m2 are liable to stamp duty on the greater of the site value or 25% of the property value (excluding VAT) at the standard rates, thresholds and exemption.
Back to top...

· Loan Time Frames

Once you have paid the booking deposit on your desired property (usually a nominal amount), here are the 5 steps to be taken:

1. Your solicitor will receive the title documents from the vendor’s solicitor.
2. When he is satisfied with the title, the initial contracts are drawn up by the vendors solicitor and then signed by you.
3. The full 10% deposit less booking deposit, is paid over by your solicitor to the vendor’s solicitor along with the initial contracts.
4. The contract is now irrevocable and at the agreed closing date should you fail to complete the deal, you will lose your deposit.
5. There is normally then a period of c. 4 weeks to close the deal from booking deposit to loan cheque draw down.

As regards your mortgage, the timing for initiating the loan process starts once you have begun to think about buying a property. Some leave it until the booking deposit has been paid. The loan process timing is as follows:

a. Loan approval in principle - within 24 hours of application and can be within an hour. Your Money Doctor adviser will give immediate assessment on application.
b. Full application to be completed, including ID and proof of residence, confirmation of income (P60s, Status Enquiry letters, or other proofs) if new house, Home Bond certificate, this together with a
valuation organised for the lender (within 5 working days).
c. Assurance (life cover) and buildings insurance to be arranged before the closing and sent to the lender.
d. Loan cheque issue - your solicitor must generally give 5 working days’ notice that you will require the loan cheque. This is called the cheque requisition. - 5 days before the closing and receiving of
the keys.
e. Your loan repayments start generally a month after the loan cheque has been issued. Under exceptional circumstances, you can negotiate a moratorium where repayments can be paid at a later
agreed date.
Back to top...