Tell us about the recent mortgage restrictions that have been proposed by the Central Bank?
By now most of you will have either heard or read about the proposals put forward yesterday, by the Central Bank, to regulate residential mortgage lending.
As a result of the huge numbers of unsustainable mortgages that resulted from the recession, the Central Bank are now seeking to minimize any possibility that a similar situation may result in future and are trying to avoid any reckless lending practices where monies are loaned to people who are not in a position to repay them.
To do this they have published proposed regulations which would place ceilings on how much a borrower could get by way of a mortgage and the limits placed take two formats. The first is a cap on how much can be borrowed when compared with the value of the property, the second restricts borrowings when the income of the borrower is considered.
They have issued a consultation paper and are looking for submissions on the proposals before 8th December of this year.
They have warned that these new rules will come into effect early in the new year.
In reality, banks may start to introduce the standards at any time from now, depending on their own internal policies.
Does this mean that banks are going to be stricter on the amount they lend when they consider the value of a property?
In thecase of your home, Banks will only be able to lend 80% of the value of the property in most cases.
This means that at least 85% of mortgages will only be given if you have 20% of the deposit .
In the case of an investment property, Banks will only lend up to 70% of the value of the property in most cases.
There are exceptions, such as, borrowers who are mortgaging for the same or lesser amount, restructuring for mortgages in arrears and lending to deal with leftover debts from negative equity mortgages.
And there are restrictions as regards income levels
The Central Bank are also proposing that you can borrow up to a maximum of three and a half times gross annual income, so for example a person earning €50,000 per year gross would have potential borrowings capped at €175,000 and so on.
Previously it had been the case that borrowings of four times gross annual salary was regular practice, and in the boom times even larger multiples.
Again, there will be exceptions, for people getting mortgages on buy to let properties, people switching mortgages and for dealing with mortgages that are currently in arrears.
What does this all really mean?
The new restrictions will mean that in reality it will be more difficult for people to successfully get mortgages.
There are pros and cons as a result. Obviously it is critical that any borrower who gets a mortgage would be able to pay back the loan, and stricter tests before monies are lent will certainly help to ensure that the possibility of lending to those who are not in a position to sustain the borrowings would be reduced.
Cash will continue to be King: whether it’s cash for the entire purchase or the cash for the deposit.
What about the market overall?
On the flipside, it may also mean that any recent improvements in the housing market may now be stalled due to the fact that it will be more difficult for people to raise finance to purchase and it will take people longer to be in a position to apply for a mortgage because of the increased amount of savings that they will have to prove.
It is likely that the lower end of the property market however may experience growth given that properties of a lower value may have to be considered by purchasers who previously would have been reaching higher up into the market.
Young purchasers in particular are going to be affected.
Another knock-on effect will likely see further pressure on the rental market, as people will have to rent for a longer before buying.
What is involved in applying for a mortgage?
. A loan application will involve some or all of the following:-
- loan application forms,
- fire insurance,
- life insurance,
- standing order to Lender,
You will need to decide whether to avail of variable, tracker or fixed interest rates and you should, of course, look for the best interest rate available. We recommend that you consult an independent mortgage broker who will investigate all of the options available to you.
You will require a salary certificate from your employer. If you are self employed you will have to provide accounts for your business.
If your loan application is successful you will receive a formal “Loan Offer” from the Bank/Building Society. The Offer of Loan will detail the loan amount, interest rate, term of the loan and the initial repayment. The Bank/ Building Society will forward a copy of the Loan Offer to your Solicitor and your Solicitor will review the documents with you.
When I have made an offer, what is the next step?
After making the offer you will need to finalise your mortgage details. This will include arranging details such as your mortgage repayments, the interest rate on the mortgage, mortgage protection etc.
A property valuation will be carried out by a valuer on behalf of the bank or lending institution, where you are receiving your loan from, to ensure the property is worth the amount you wish to borrow.
What happens after the valuation?
Once the valuation is submitted a formal loan offer will be issued to you and your solicitor. Both you and your solicitor will need to read this carefully, sign it and return it to the lending institution.
Do I need a solicitor- what do they do?
As soon as we receive your Loan Offer from your Bank we will establish contact with them. We have the responsibility to deal with the requirements of your Lender to make sure that they have adequate security. They will ask us to sign a Certificate of Title which is a personal guarantee by us that the title is in order.
If you already have a loan on the property the documents will be held by your Bank/Building Society. We send your written letter of Authority authorising us to take up the Title Documents to the Bank/Building Society. It normally takes two to three weeks before we receive the documents from the Lending institution.
When we get the documents we investigate your title. Depending on the number of factors it can take anything up to 5weeks to get past this stage.
An area that frequently causes problems is Planning Permission.
If your house was built after 1st of October 1964 we will have to ensure that we have copies of the Planning Permission. It is also necessary to obtain evidence that the Conditions in the Planning Permission have been complied with. This is done by Declaration from an Engineer or Architect who declares that he has inspected the house and the plans on foot of which the Planning Permission was granted and that the house was built in substantial compliance with the Planning Permission.
You may have built an extension, garage or shed since you first built or purchased your house. If so, evidence will have to be produced in the form of an Engineer’s Declaration that the extension was either exempt from the requirement to obtain planning permission or, if permission was required, a declaration that the conditions of the planning permission have been complied with.
If your house is served by a septic tank it will be necessary to arrange for an Architect or Engineer to inspect the property and sign a Certificate that the septic tank and the percolation area are located within the boundaries of your property.
Building Regulations came in to force on the 1st of June 1992 imposing rigorous standards for construction, extension and renovation works. From this date there is a legal obligation to comply with the Building Regulations in relation to all new buildings, alterations, extensions or changes of use. If you have carried out any work since this date an architect’s declaration of compliance or exemption in relation to the building regulations is required.
What else is involved in the process of getting funds?
Once our investigation of title is completed we will arrange for you to sign the acceptance Loan Offer. You will also be required to sign the Deed of Mortgage which will be sent to us by the Lender at this stage. The Acceptance of Loan Offer and other legal documents are returned to the Bank where they will be processed. Once the legal documents are processed and the bank are satisfied that you have complied with all of the conditions on the Loan Offer the loan cheque will be released to us.
From the day that we receive the loan cheque it will take five working days for our bank to clear the funds. If we are required to clear of existing borrowings out of the loan cheque we will request details of the outstanding borrowings from the lending institutions. In some instances banks will not release the details of personal loans to us and it will be necessary for you to obtain the redemption figures for us. We will let you know if this is the case.
We will carry out Searches as soon as the loan cheque clears in order to confirm to the Lender that you have not, e.g. attempted to sell the property to someone else, and remortgaged the property or gone bankrupt.
We then pay off your existing Bank or Building Society and any other borrowings stipulated by your Lender and deduct our agreed fees and outlays. We will then give you a cheque for the net proceeds of loan.
Our work will not yet be completed, however! We will register the new mortgage in the Land Registry or Registry of Deeds and once registration is completed lodge the title documents with your Lending Agency.