Mortgage questions - guarantor, broker

brianocar

Hello,

I'm trying to get a mortgage at present. The details of my application are below but for now, I have a couple of specific questions:

1. Is the practice of using your parents as guarantor still in place in Irish lenders?
2. Is it common for one's employer to be guarantor for a mortgage application? (if you have a good, long-standing relationship of course)
3. Is it a good idea to use a mortgage broker? If so, can anybody recommend one or give me some advice on how to deal with them?
4. How does a mortgage broker get paid?
5. Are there any banks which are being more 'generous' than others at present?

Thanks very much...
Brian
[Regular boards user, using an old account!]

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Here's the details of the application if anyone's interested.. Comments welcome. (I know it's not the most attractive application from a lender's point of view).

Applicants:
- Myself and my wife
- No kids (yet!)
- Ages - late twenties
- Savings - €35K
- Currently living in my (small) 2-bed apartment but would like to buy a 3-4 bed house in our home town with a view to raising a family. No major rush but particularly interested at present because house prices are so low!
- Property cost - up to €300K,
- Mortgage required - approx €250K

My employment details
- Self-employed computer programmer since Jan 2008. Full-time employee in the same field for 7 years before that.
- Income - €35K in 2008 (have tax return docs from revenue), €50K in 2009 (no tax returns made yet for '09)
- Still working almost entirely for the same company I've been working for for the previous 7 years*
- Have a letter from this company guaranteeing full-time contract work for me for at least the next 3 years

My wife's employment details
- Full-time, permanent, PAYE employee of a 'secure' company
- With current employer approx 2 years
- Salary - €35K

Existing property (this is where it gets ugly!)
- I bought an apartment on the affordable housing scheme in 2007. Cost me €215K. I got a mortgage at the time for €208K with €205K currently outstanding. Have never failed to make monthly repayment on time. The current market value at a realistic and reasonably informed guess is about €150K. Monthly repayment=€957 (after tax relief). Approx rental income=€800 per month (based on daft searches)
- My wife bought a house with her sister about 6-7 years ago for €170K. Currently being rented for €700 per month. Not sure what the mortgage outstanding is on that but probably about €150K. I think she got a 'top-up' at some stage too but not sure for how much. It's now worth about €200K (fairly un-informed guess). Sorry about sketchyness of details here. I'll post more accurate ones when I find out. Monthly repayment=€1000
- The plan is to keep and rent out the above 2 properties (because selling now at such low prices is not an attractive option). I know renting is, strictly speaking, not allowed for an affordable property but, to put it bluntly, I'm not that bothered!

Offers so far
- AIB told me over the phone that it was coming up on the 'system' that I was provisionally approved for a mortgage of €495K!! :eek: Sounded too good to be true and it turned out to be just that when I got a letter a week later saying that they wouldn't be able to offer me any mortgage at all. Half a million to zero in one week, that's tough
- I've also been in touch with EBS who have offered me €100K (saying that they couldn't take rental income into account on the apartment because renting is not allowed on the affordable housing scheme).

Edit: We have no other loans of any kind..

*No, I didn't just become self-employed to avoid paying so much tax. I was intending to branch out and do other work for a variety of customers but the recession kind of scuppered those plans and my old company had plenty of work to keep me occupied full time (thankfully!), so that's the way it turned out.

Mezcita

Regarding your questions:

1. Yes if required.
2. Not sure what you mean here. The guarantor is essentially liable for the mortgage if you can't pay it. Therefore somebody's employer would never act as guarantor.
3. Yes definitely. The key thing is to make sure that the broker deals with all of the banks rather than a select few. They will be able to pitch your situation and give you an answer on the best rates available.
4. They get a commission of the mortgage from the bank. They used to act for free but with the collapse of the market they now charge a fee. €1000 quoted to a friend of mine. Worth it when you consider that a high rate will cost you a fortune over the course of the mortgage.
5. Something which your broker would be able to advise on.

Not sure regarding your application but you and your wife are carrying a considerable amount of debt on the two existing properties. Once again, a broker could give you proper advice but I don't think it looks too good.

brianocar

Thanks very much Mezcita!

[I don't see a 'Thanks' button, probably because of my low post-count on this account]

D3PO

Brian a few things here


1. Is the practice of using your parents as guarantor still in place in Irish lenders?

Yes this is still in place, its not ideal and your better if you dont need to do so.

2. Is it common for one's employer to be guarantor for a mortgage application? (if you have a good, long-standing relationship of course)

Ive never heard of this, but ultimatly a guarantor is a guarantor I would have thought

3. Is it a good idea to use a mortgage broker? If so, can anybody recommend one or give me some advice on how to deal with them?

Its not a bad idea. Just call them they will arrange a meeting take some details on your earnings, outgoings , circumstances etc what your looking for and they can help with your applications to banks


4. How does a mortgage broker get paid?

Some charge a fee, most dont becasue they get a percentage of the drawdown value off the bak that gets the business.

5. Are there any banks which are being more 'generous' than others at present?

AIB & BOI own about 80% of the new mortgage market righ tnow so being generous isnt really something that exists. Historically AIB & EBS tended to offer a little more than others in my experience and that of people I know.


Apart from your questions a few points.

a) If you buy and rent out your affordable house you will have to pay a clawback of up to 20% on the purchase price or will find its against the terms and you cannot do it

b) I dont see you work in a tax calculation for renting out both the houses you own, have you caluclated in the property tax you will owe on both houses aswell ?

c) I dont see how you only need a 250k mortgage on a 300k property if you have only 35k savings ? where is the other 15k coming from ? where are your proffessional fees coming from ? where is your stamp duty coming from ?

d) you realise that if you buy a new house your going to have to probably make your other mortage a buy to let mortgage therfore pushing your interest rate up significantly probably by 2 percentage points odd

Looking at the bare details you have posted you arent in a position to buy a new house, and to even consider it is absolutly insane :eek::eek:

D3PO

also forgot to mention you dont appear to have calculated for vacancy periods, loss of TRS or any king of maintenance.

You really are wasting your time here. If any bank were to give you any mortgage approval Id be astonished becasue theres no way on the details you have provided you can even think about buying.

This is the prototypical bubble time logic people had that has lead to the situation were in right now.

Oh and if your wife bought in 2004 as suggested Id say its unlikely her house is worth 15% more now than when she purchased.

Dempo1

I think your in a Bind here, primarily because you are in negative equity with little hope of selling your apartment right now. My feelings are that you should firstly consider selling the apartment (which will take some time) before considering taking on a new mortgage.

Banks are quite reluctant to go the Guarantor route at present and employers would never go this route.

Avoid Brokers, your on the property ladder with a good track record, Banks whilst cautious right now are offering deals, no need for Brokers to get involved.

On the upside, there are incredible bargains with a lot of housing stock on the market so if you sell your apartment, even at a loss, you could get your hands on a house at very competitive prices right now.

Your real challenge is to sell the apartment an avoid being stuck with it as well as an additional mortgage, renting is a mugs came, it never covers all the costs unless your a serious investor with resources to back it up.

D3PO

Dempo1 wrote: »

I think your in a Bind here, primarily because you are in negative equity with little hope of selling your apartment right now. My feelings are that you should firstly consider selling the apartment (which will take some time) before considering taking on a new mortgage.

I dont believe that would be an option. If he bought in 2007 on the affordable housing scheme hes going to be hit with a massive clawback charge. On the figures above he wont be able to cover the clawback charge and bridging the negative equity hes in.

and if your referring to the property his wife owns with her sister Id imagine her sister would be pretty relulctant to sell up. Why would she essentially sell up and be left in a position where she loses her FTB status. Shes then going to have to purchase somewhere else to live with a stamp duty charge, and also lose out on what little TRS shes still getting

Dempo1 wrote: »

Avoid Brokers, your on the property ladder with a good track record, Banks whilst cautious right now are offering deals, no need for Brokers to get involved.

No need for a broker but no harm either.

Dempo1

Agreed, missed the point about affordable housing. Either way, i think he is in a bind with negative equity, made all the worse by the penalties he faces if he sells. I would also be doubtful if their combined earnings would realize the dream home they seek.

brianocar

Thanks very much for that useful advice DP30!

It appears I will have to sit down and really do the sums on this and take into account all of the extra expenses you've mentioned.

In answer to your question re the €15K, I was thinking of putting our apartment up for rent straight away and moving in with my folks for 6 months to facilitate more saving. Plus, it would give us a realistic impression of the ins and outs of renting the apartment. We wouldn't want to be in a situation where we're buying a house in 6 months, and can't find anyone to rent our apartment (with 2 and a half mortgages to pay!).

In relation to the renting of affordable housing properties, I will have to talk to the council. To be honest, I can't see them being too strict about enforcing the conditions of the scheme which has back-fired so badly on the buyer. I'm not saying that it's their fault or that I deserved anything better and I know there are people in a far worse position than myself, but I would be very surprised if they were holding people to the exact terms of the contract in the current climate (regarding clawback, renting, etc). Maybe I'm being naive in that assumption! Anybody have any experience of this?

I suppose this current 'plan' is really a means of getting a house in the area we are from (in order to have the space to meet our future needs). It is not an urgent, immediate requirement but I thought it was a good time to look in to it while the prices are so low (not to say that they won't go lower, I don't know that any more than anyone does!). There are probably other, better ways of achieving the same goal which I have been thinking about in the past couple of days, e.g.:

- Talk to the co council about 'upgrading' to a house on the AHS instead of an apartment. I jumped on the opportunity to buy this apartment when it was offered for a variety of (probably foolish) reasons (1. I had been waiting a year or 2 and this was the first hint of an offer I recieved, 2. houses were so bloody expensive at the time and appeared to be rising in price all the time). Anyway, it's quite possible that there are people in my area in an affordable house who would have rathered an apartment but went for a house for the same reasons as I have mentioned. Such a person/couple may now find themselves in a position where they can't afford their affordable house and would rather an apartment and a smaller mortgage. Therefore a 'swap' might be a possibility?
- Second alternative option is for us to move in to my wife's house. Only problem with that is that it's quite remote from our current home/family and that is a fairly important factor for us!

Thanks again for the input. Any feedback on the above alternatives is very welcome! I'll keep this thread updated with my progress..

brianocar

Thanks Dempo1. Sorry, was busy writing that reply (and working!) while those last few posts were added.

To put the clawback/negative equity situation into figures for you:
- House was bought for 215 on the AHS
- 'Market Value' at the time was 335 (so council effectively 'owns' about 35%, i.e. if I sell, whatever price I get, that is their cut)
- The builder still has a good few of these apartments to sell and they are advertised at 175. I think if he was offered 150 he would take it. Therefore, 150 is about the max I could expect to get for mine (if it was even possible to sell it! It's not one of these dreadful 'ghost estates' mind you. It's a perfectly habitable area!)
- Anyway, of my 150, 50 will probably have to go to the council, leaving me with 100 and a mortgage of over 205, hell of a gap i.e. not really possible.

As I've said above though, I would be very surprised if the council demanded the 50K off people in that position. It's not exactly the way the AHS was supposed to work!

D3PO

well best of luck with it either way.

My personal suggestion right now would be to continue doing what your doign right now in terms of saving etc

your only in your late twenties and depending on your family plans you may have a few years leway here. The more you can get together in terms of your deposit, whilst also servicing your debt (the 2 properties) the stronger your position will be.

I think your much more likely to be in a postion to make this dream purchase in 2-3 years time if you keep being prudent.

Do you maths and see whats the best option for your savings, maybe paying off some of your mortgage is best, perhaps you can find a high yield account, or investing in post office bonds would be better. Whatever it is make sure that money works for you and not the banks.

Jo King

brianocar wrote: »

Thanks Dempo1. Sorry, was busy writing that reply (and working!) while those last few posts were added.


- Anyway, of my 150, 50 will probably have to go to the council, leaving me with 100 and a mortgage of over 205, hell of a gap i.e. not really possible.

How are you going to sell it without clearing the mortgage?

D3PO

brianocar wrote: »

In answer to your question re the €15K, I was thinking of putting our apartment up for rent straight away and moving in with my folks for 6 months to facilitate more saving. Plus, it would give us a realistic impression of the ins and outs of renting the apartment. We wouldn't want to be in a situation where we're buying a house in 6 months, and can't find anyone to rent our apartment (with 2 and a half mortgages to pay!).

FYI aswell as the 15k you know you will have to pay stamp duty on a new purchase right ? so it will be more than 15k.

if you bought for 300k as mentioned you would have to pay 12,250 on top of this on stamp duty (7% of price above the first 125k which is exempt) and you wouldnt be able to tack that onto your mortgage you would have to have this saved.

alsoforgot to mention if you rent your property aswell as council clawbacks there would be a stamp duty clawback due

you should have a read of this

http://www.citizensinformation.ie/categories/housing/owning-a-home/buying-a-home/stamp_duty

Darren

D3PO

Jo King wrote: »

How are you going to sell it without clearing the mortgage?

I think hes indicating that he couldnt do it

brianocar

Jo King wrote: »

How are you going to sell it without clearing the mortgage?

I don't know I've never sold a house/apartment before!

Thanks D3P0 for the link. I'll check it out! The next thing to do is ring the council and try and have an informal chat about the implications of various hypothetical situations.. I bloody hate making calls like that though