1. Don't panic Buying your first home is, let's face it, always going to be terrifying and the fear is only ever likely to be exacerbated in a climate where you have rising prices, hordes of people at every viewing and memories of a cataclysmic crash all simultaneously competing for your attention. The key thing is stay calm and don't allow yourself be bounced into making the wrong decisions.
2. Get your house in order A methodical approach from the very beginning will always stand you in good stead. Banks will insist on first-time buyers having deposits of at least 8 per cent before they even consider issuing mortgages and will carry out the most forensic of checks to make sure that you are a good bet.
So you need to make sure all your accounts are operating in credit or within an agreed overdraft limit and work hard at clearing loans or outstanding credit card balances – such borrowings will impact the amount you can borrow. While doing that you will also need to save hard. Continued on page 8 The bigger your deposit the more clearly you show all banks that you can afford the mortgage and the more you protect yourself against any future property price falls.
Banks also like to see a record of rent payments going through your bank account for at least six to nine months ahead of granting you a mortgage. This is the best way to demonstrate that you have the capacity to make your mortgage repayments. If you’re living at home with your parents and making a contribution to the household – make it formal and set up a standing order for this as evidence of your regular payments.
3. Broker's a deal Mortgage brokers can be your friend as a first-time buyer – a good one will not allow you to make an application to a bank until they are pretty sure your finances are in order so you won't find yourself being refused at the first fence. They should also be able to offer advice on how much you can afford and if you find a broker you can trust they will be on your side which is more than we can say about the banks or estate agents. You will need loan approval before you even bother to make a bid. If you don't have it in place you will not be entertained.
4. Don't pay more than you can afford The new-found sensibility on the part of financial institutions is well and good but you are better placed to decide how much you can afford to spend on your first home. So do your homework before you go looking for a mortgage, work out your repayment capacity – you really shouldn't be paying more than a third of your net income on a mortgage. If you are part of a couple earning a combined take-home salary of €4,000 a month your mortgage should not be more than €1,350.
5. Look to the future Interest rates are at historically low levels so that can only really go one way in the years ahead – what would happen to your mortgage of €250,000 if rates increased by 3 per cent? It may be scary to crunch the numbers but better to do it now than in five years. Banks stress test an applicants' ability to repay a loan at the current rate of interest plus a couple of points – you should do the same. For every quarter of a point rates go up, the monthly cost of servicing a €100,000 mortgage goes up by about €15 although the actual amount depends on many factors including the term. If you have a mortgage of €200,000 and interests rates go up by 2 per cent you would need to find an additional €250 a month after tax or just under €3,000 each year. To cover that cost you'd need to earn an additional €6,000.
6. Tweak things What would happen if you lose your job, or you start a family and have to cover the cost of childcare – not to mention all the other costs that come with having a child? Don't forget other costs, such as home insurance, life assurance, property tax.
7. Look for the fixer upper Everybody wants to buy the immaculate, architect-designed home that they can just walk into. Sadly, for most first-time buyers, that is not going to happen so accept that and embrace the challenge of doing up run-down properties – competition will be a lot less intense for such properties and you'd be amazed by what can be achieved with a coat of paint and a floor sander. And remember that your first house is not likely to be either your dream house or your last house so don't feel too bad settling for something less than you hoped for. But get a survey done. It will set you back around €450 but it will give you peace of mind.
Get your mortgage : What you'll need
- 3 months’ payslips
- Salary certificate signed by your employer
- P60
- Six months’ statements for savings/investments
- Six months’ statements for any outstanding loans
- If you are self-employed, you will need a minimum of three years’ audited accounts
