Last week, we covered the first six of the "first-time buyers' dozen" from Irish Mortgage Corporation (IMC) - a set of useful tips for anybody considering entering the property market for the first time. We consider the second half-dozen pieces of advice this week, beginning with some advice on guarantors.
IMC points out that first-time buyers who have difficulty pushing themselves over the line to mortgage approval could choose to do so with the help of a parent or other relative.
Rather than getting this kindly to simply provide a lump sum however, the broker says it may be possible to get them to "guarantee" the loan repayments. This means that they will sign a agreement to ensure that they will pick up any repayments that you miss, for whatever reason, in the future. The problem of course is that the agreement will be legal in nature. This means that all parties involved must take time to consider the matter and invite legal advice before they sign. Foresight is thus extremely important.
At number eight, we have some guidance on the "rent-a-room" scheme - the system whereby homeowners can take in a certain amount of rent each month without incurring any tax liability.
At the moment, this limit stands at €635 per month, a level which would cover most rents for spare rooms in the type of properties first-time buyers can afford. It may not seem like much, but a monthly injection of this size could make all the difference when those bills kick in.
Next up, IMC looks at the possibility of extending a mortgage term to minimise initial repayments. The basic rule of thumb here is that longer terms (say 30, as opposed to 25 years) will cost less at the start of the mortgage but will cost more over the entire life of the loan.
The example given is a buyer who borrows €250,000 at an APR of 3.1 per cent. Over 20 years, the monthly repayment would be almost €1,400 while, over 35 years, this would be reduced to €976. IMC points out that most people pay off their loans early, but this should of course never be taken as a given.
At number 10, we find interest-only mortgages, an option which usually fails to pop up on the horizon of the average first-time buyer. Again, the benefit here is that initial repayments will be lower, since they only cover the interest (not the capital) on the loan.
This type of loan, popular with investors, is available from a small number of Irish lenders, but usually only for a limited period of, for example, three years. After this stage, the loan will revert to the more familiar "annuity" type, where monthly repayments eat into both interest and capital.
The penultimate tip of the dozen concerns parental assistance, a phenomenon by now familiar to vast numbers of first-time buyers. Importantly, as IMC notes, the size of the lump sum mummy and daddy may wish to contribute to their little darling's house fund can be as little or large as they like. Now the only problem is persuading them it makes sense.
Last on IMC's list is arguably the most important tip of all - shop around. The broker points out, quite rightly, that there will be no substitute for a first-time buyer doing his or her own research before choosing a mortgage.
This means understanding the differences between fixed, variable and tracker loans, as well as having an idea of how interest rates can move in the future.
Buyers should also take time to check out different loan structures (such as current-account or the aforementioned interest-only loans) either on their own, or with the help of a broker.
Brokers levy no charge on borrowers, taking their commission instead from the lender with whom they place the loan. This system means it makes sense to go for a broker who has relationships with a large number of lenders and will thus (one would hope) be relatively agnostic when it comes to recommending one lender over another.
