Approval In Principle not translating into mortgage draw-down?

Floodzie

Hi,

I have had 2 friends who have both been dealing with mortgage advisors in 2 different banks, who were both quite bullish on how much they could borrow (one was in fact going to borrow 20k less than AIP) but BOTH have had the mortgage draw-down declined at the last minute. Has anyone else experienced this? Are the banks panicking?

gaius c

What was their projected LTV?

NinjaTruncs

gaius c wrote: »

What was their projected LTV?

And also their LTI.

I didn't quite have the same experience. But when I went to the bank the advisor in the bank looked at our salaries and said I'll put you in for x amount, when the underwriters came back they would only give us 20% less.

Floodzie

gaius c wrote: »

What was their projected LTV?

One was about 90% LTV, the other was under 80%.

With the first, my friend suspects they were taking mortgage costs into account (solicitor, moving etc fees perhaps?)

With the second, no idea. Seemed very positive, but in the last couple of weeks a lot of trouble getting call-backs from the bank. Possibly Greece and China trouble making lenders more cautious, pushing decisions out by a week or two?

First was close to limit of LTI, second was reasonably under (about 5-10%).

dearg lady

Hmmm, this concerns me. So who does the approval in principle, is it just the sales person in the bank? I'm hoping to apply shortly, but I have a property in negative equity which I know will hinder me. I spoke with someone in the bank late last year and they seemed confident that I would get what I was looking for once I had the deposit. I don't want to go through the whole process, find a place,and then not be able to draw down.

Denisoftus

Just wondering, how can you go from approval in principal to draw down skipping a formal offer letter, or did you mean they had offer letter and on closing bank refused to release the funds?

farrerg

Floodzie wrote: »

Hi,

I have had 2 friends who have both been dealing with mortgage advisors in 2 different banks, who were both quite bullish on how much they could borrow (one was in fact going to borrow 20k less than AIP) but BOTH have had the mortgage draw-down declined at the last minute. Has anyone else experienced this? Are the banks panicking?

Was the drawdown declined or did they pull back when it came to formal offer stage?

I saw another poster mentioned issues with a valuation in a previous thread, could this have come up short?

Any time I have heard of this there is one of two things going on, one person is self employed or contract which makes them nervous, or there is a commitment the branch didn't pick up on (furniture bought on credit for example that the borrower didn't think of when declaring their loans) or income has been included that the underwriter isn't willing to accept i.e. lodge allowances given to some tradesmen

seamus

Denisoftus wrote: »

Just wondering, have can you go from approval in principal to draw down skipping a formal offer letter, or did you mean they had offer letter and on closing bank refused to release the funds?

This.

Very rare to hear of banks pulling the plug just before draw-down, as it can have massive implications for the borrower. Usually only happens if they've omitted something major ("Oh yeah, I own half of my brother's floundering business") or their circumstances change - lose their job, etc.

But certainly I've heard of plenty of cases where AIP doesn't translate into a formal letter offer.

This is because AIP looks at a very high level of incomings and outgoings and makes a calculation based on that. Full approval does a much more in-depth look at finances, including reviewing bank accounts statements and doing credit checks.

This can yield a very different figure in the end. Plus when offering AIP banks put their best foot forward in the hopes that customers will select them. Once you go for full mortgage approval, people tend to feel committed to that bank and so don't try anyone else.

gaius c

Floodzie wrote: »

One was about 90% LTV, the other was under 80%.

With the first, my friend suspects they were taking mortgage costs into account (solicitor, moving etc fees perhaps?)

With the second, no idea. Seemed very positive, but in the last couple of weeks a lot of trouble getting call-backs from the bank. Possibly Greece and China trouble making lenders more cautious, pushing decisions out by a week or two?

First was close to limit of LTI, second was reasonably under (about 5-10%).

So for the first one, they only had approx 10% deposit and unknown other costs on top of that?
Of course they were going to get shot down and if they applied a similar level of thinking to the 80% LTV, the bank would be erring on the side of caution too.

Sorry but it sounds like they took their deposit and multiplied it by ten to get their housebuying budget and the bank understandably have a more nuanced view of what their budget should be.

The_Conductor

Guys- the last of the pre-new-rules approvals in principle are finally expiring (last possible date is the 11th of August).
These final ones are eating into the leeway banks have for borrowers under the new rules.
A 90% mortgage or an 80% mortgage (depending on whether you're a first-time-buyer, or not) might seem like a target for a prospective buyer- but for a lender- who is doing risk profiling- they are trying to get an overall FTB and non-FTB profile with as low an LTV as possible (esp. with whats happening in the Dublin market- and the slowdown thats spreading radiating out from the east).

Lenders are not throwing money around.
Borrowers- who are showing prudent plans- buying property within their means- and below the maximum thresholds- are getting mortgages. If you go right up to the maximum possible under the rules- you are at serious risk of not getting a formal offer letter.

One final point- approval in principle- is only a guidance. It doesn't mean anything. It is dangerous to presume that an approval-in-principle equates with a loan offer- it doesn't.

Lenders are being prudent. Borrowers may not be- however, even borrowers hands may be forced- if lenders, as a group- show they are acting in a far more rational manner than they were during the boom years.

Changes are happening- quickly- talk to any risk assessors- lenders are determined to be as far ahead of the curve this time round, as possible. Who knows- in 2 years time- you may be ringing them up- thanking them for turning you down for that 90% mortgage- its entirely plausible that prices may fall significantly.

Floodzie

Hi All,

I checked with both friends, and it is indeed a case of the bank telling them one thing for AIP, but this not translating into an actual offer letter. As another poster suggested, it looks like the bank will tell you what you want to hear, but nothing is set in stone until the offer letter appears.

In both cases they were off looking and putting offers in for houses without a formal offer letter.

Denisoftus

Ok, that explains it, they had AIP but offer letter was rejected, so its not the case where mortgage funds were refused at the closing, in this case, its normal, as underwriters will look at actual figures before issue an offer letter, where AIP is agreed on verbal communication.

Michael D Not Higgins

Denisoftus wrote: »

Ok, that explains it, they had AIP but offer letter was rejected, so its not the case where mortgage funds were refused at the closing, in this case, its normal, as underwriters will look at actual figures before issue an offer letter, where AIP is agreed on verbal communication.

I hope this gets filtered through to the general house buying public. It will stop spiral rising prices when people understand the first number they're given is likely higher than the amount they'll get.

johnp001

Michael D Not Higgins wrote: »

I hope this gets filtered through to the general house buying public. It will stop spiral rising prices when people understand the first number they're given is likely higher than the amount they'll get.

And also to the house selling public and estate agents. Sales falling through can be a much bigger headache to the seller, especially if the market is falling.
EAs don't get paid if the sale doesn't go through so while agents are incentivized to have people inflating prices (and hence commissions) by bidding more than they will be able to draw down their business model is completely dependent on the final buyer being able to draw down on the AIPs that they have based their bidding on.

ionapaul

We just closed on a house in the last week - we looked for a pretty conservative amount (60% LTV and a bit more than 2x combined gross annual earnings) so there were no hitches from the bank point-of-view. Find it hard to believe that there are many prospective buyers out there really pushing the boat out in terms of attempting to borrow the max that any 'calculator' indicates they can, it seems so imprudent.

It's a sickening feeling if you're in a bidding war and don't know if the counter-bidders are using their full AIP amounts as basis for their bids, without realising they probably won't be able to borrow that entire amount should they come out on top once the bidding is over!

johnp001

ionapaul wrote: »

We just closed on a house in the last week - we looked for a pretty conservative amount (60% LTV and a bit more than 2x combined gross annual earnings) so there were no hitches from the bank point-of-view. Find it hard to believe that there are many prospective buyers out there really pushing the boat out in terms of attempting to borrow the max that any 'calculator' indicates they can, it seems so imprudent.

It's a sickening feeling if you're in a bidding war and don't know if the counter-bidders are using their full AIP amounts as basis for their bids, without realising they probably won't be able to borrow that entire amount should they come out on top once the bidding is over!

I agree it is very imprudent but the 100% and 100%+ mortgages that were common in the last decade must have given you a clue that there are many imprudent prospective buyers out there?
Luckily for them these new rules seem to be be enforcing prudence on the banks.

The_Conductor

ionapaul wrote: »

It's a sickening feeling if you're in a bidding war and don't know if the counter-bidders are using their full AIP amounts as basis for their bids, without realising they probably won't be able to borrow that entire amount should they come out on top once the bidding is over!

I'd argue that its actually unethical to hold winning bidders who follow through on their offers- to the prices they topped out at- when in all probability the people they bid against- don't have the means to honour their bids.........

Estate agents should refuse to take offers from anyone- until the prospective buyer has shown they have the funds to honor the offer they are making.

farrerg

Floodzie wrote: »

Hi All,

I checked with both friends, and it is indeed a case of the bank telling them one thing for AIP, but this not translating into an actual offer letter. As another poster suggested, it looks like the bank will tell you what you want to hear, but nothing is set in stone until the offer letter appears.

In both cases they were off looking and putting offers in for houses without a formal offer letter.

It seems to differ between banks, Ulster want all documentation before AIP and the application goes to an underwriter, then it's just the valuation left to get before offer is issued, much less chance of something cropping up at this stage that would affect your amount except maybe a change in job

Riverireland

I was considering moving last year and discussed it with my bank. They insisted in giving me Aip even though I told them I didn't need it as I was only looking at options. Personally I think they are massaging the figures to make it look like they are approving loans.

I Am The Law

The_Conductor wrote: »

I'd argue that its actually unethical to hold winning bidders who follow through on their offers- to the prices they topped out at- when in all probability the people they bid against- don't have the means to honour their bids.........

Estate agents should refuse to take offers from anyone- until the prospective buyer has shown they have the funds to honor the offer they are making.

Completely agree, it causes inflated seller expectations and excludes genuine buyers such as those with the cash in hand.

The_Conductor

I Am The Law wrote: »

Completely agree, it causes inflated seller expectations and excludes genuine buyers such as those with the cash in hand.

However- the flipside of the coin is you get potential buyers bitching about having to get letters from solicitors stating they have the funding to back the bids they make- etc. etc. You'd also need repeated letters- every time someone upped their bid- as obviously any sum referred to in the initial letter would no longer be valid (and not having a sum specified in the letter- at least equal to the bid being made- would mean the letter was meaningless).

Its a bit of a catch 22- damned if you do, damned if you don't.........

fishfoodie

The_Conductor wrote: »

However- the flipside of the coin is you get potential buyers bitching about having to get letters from solicitors stating they have the funding to back the bids they make- etc. etc. You'd also need repeated letters- every time someone upped their bid- as obviously any sum referred to in the initial letter would no longer be valid (and not having a sum specified in the letter- at least equal to the bid being made- would mean the letter was meaningless).

Its a bit of a catch 22- damned if you do, damned if you don't.........

The obvious solution would be to have the bidders solicitor act as check, so that the EA doesn't try to get the bidder to disclose how much they can bid up to, & not be continually going back & forth to the bank. The Bidder discloses to their solicitor the amount they can draw down, & then the EA can just ask the solicitor if they are satisfied that the bid is genuine !

johnp001

The_Conductor wrote: »

However- the flipside of the coin is you get potential buyers bitching about having to get letters from solicitors stating they have the funding to back the bids they make- etc. etc. You'd also need repeated letters- every time someone upped their bid- as obviously any sum referred to in the initial letter would no longer be valid (and not having a sum specified in the letter- at least equal to the bid being made- would mean the letter was meaningless).

Its a bit of a catch 22- damned if you do, damned if you don't.........

Sellers and agents were more than happy to have a few fantasist buyers floating around the market bidding up property prices with money they could never leverage but only as long as banks were consistently providing loans to most borrowers and the majority of sales were going through.
It looks as though this situation has reversed. It is going to be a massive boon to all serious buyers now that sellers and agents have to get serious about bidders finances.
Its not a big deal to get your bank manager to issue a letter on headed paper saying you have cash and/or underwritten loan approval to cover a bid of X when you want to make a bid. The minor inconvenience is negligible when compared with the benefits of not having to bid against people bidding money that they have no hope of actually borrowing and thereby inflating prices.

The_Conductor

Were though is the operating word.
Its such an issue now that its almost par du course for a property to have to go back to market 3-4 times (sometimes more) before it sells. Estate agents- who I know none of us particularly like- are at their wits end. They have no idea at the end of a process- whether or not they have sold a property. When you've sold the same house 5 times in a row over a 9 month period- and still don't know whether you're going to get paid for your services or not- then its time to hang up your boots and take up a new profession- as indeed, many EAs in the Dublin area are beginning to do.

The levels of disfunctionality in the property market are simply breath-taking.

johnp001

The_Conductor wrote: »

Were though is the operating word.
Its such an issue now that its almost par du course for a property to have to go back to market 3-4 times (sometimes more) before it sells. Estate agents- who I know none of us particularly like- are at their wits end. They have no idea at the end of a process- whether or not they have sold a property. When you've sold the same house 5 times in a row over a 9 month period- and still don't know whether you're going to get paid for your services or not- then its time to hang up your boots and take up a new profession- as indeed, many EAs in the Dublin area are beginning to do.

The levels of disfunctionality in the property market are simply breath-taking.

I interpret the developments under discussion in this thread as positive for the property market.
The macro-prudential rules are having far reaching consequences on the market and will continue to do so but it can only be beneficial to the market as a whole if bids on a property reflect what a prospective buyer is actually able to pay rather than what an unscrupulous bank is willing to tell him he can afford in the hopes of winning his business.

The situation that we have now with sales falling through so much is due to the dichotomy that sellers and agents find themselves in with regard to exorbitant bids.
For years agents and vendors (together with the banks) benefitted hugely from imprudent buyers willing to pay over the odds for property.
Now that the banks' hands are being tied by the new regulations, and they are no longer able to collaborate in facilitating this market inflation, vendors and agents are left in a difficult situation.

On one had they want to encourage "aspirational" bidding from prospective buyers to achieve the inflated prices that they came to expect after more than a decade of bank collusion (through unregulated lending) in driving up prices but on the other hand they actually need to close sales which is becoming hugely difficult as banks will no longer fund the purchase prices that vendors have come to expect.

Its difficult for vendors and agents to adjust to the new realities but it will happen sooner rather than later and we will start to see the vast majority of sales completing again (albeit at lower prices)

Any serious buyer should be pleased to be asked to provide conclusive proof of their purchasing power as it is a strong sign that the dysfunction in the market is coming to an end.

CantGetNoSleep

fishfoodie wrote: »

The obvious solution would be to have the bidders solicitor act as check, so that the EA doesn't try to get the bidder to disclose how much they can bid up to, & not be continually going back & forth to the bank. The Bidder discloses to their solicitor the amount they can draw down, & then the EA can just ask the solicitor if they are satisfied that the bid is genuine !

You'd be putting a lot of trust in the solicitor then

Glenbhoy

farrerg wrote: »

It seems to differ between banks, Ulster want all documentation before AIP and the application goes to an underwriter, then it's just the valuation left to get before offer is issued, much less chance of something cropping up at this stage that would affect your amount except maybe a change in job

I had the same experience with AIB, all docs were sent, six months statements and queries arising from them were answered. I was told by the branch staff member I dealt with that the number would not be lower unless they became aware of one of us losing job etc.
The central bank only allowed offers based on underwriting checks (and issued prior to feb) to deviate from the new regulations, which suggests yo me that most aip's are realistic as they have been properly assessed in advance.
I think PTSB offer aip based in verbal communication or online calculator, BOI anyone?

crisco10

We just got mortgage from AIB. But had AIP from KBC and AIB; for both AIP we had submitted the document "pack", 6 month statements, salary certs etc.

Then we came to applying for the actual mortgage against the property, we simply submitted the latest monthly statements (that had occured since we got AIP) with the valuers report and the letter came through no hassle. The rest of our application was based on info submitted for AIP.

There seems to be a lot of varying definitions of AIP out there.

gmisk

I have been dealing with EBS and found them great tbh.
Due to draw down and have keys next Friday going well, although I had approval for 165 and only taking 140.