Question for knowlegeable posters re: mortgages

erudec

(I ramble a bit, so feel free to skip to the paragraph in bold at the bottom of this post.)

So my cousin is thinking of selling up his rental property (as soon as he has got shot of the current tenants, which is very much expected to happen this year).

He has specific buyers in mind: a married couple he's known forever. She's a doctor and he's a manager in a recession-proof industry. Manager is going to be moved back to the Dublin office from the UK for a promotion late this year.

My cousin got excited about selling them the house. These people are extremely good friends. When my cousin was fighting cancer, they often flew over specially to spend time with him, sometimes not even visiting anyone else while they were in Ireland. My cousin really loves these people.

So they got talking around beers, and they did their calculations on the back of an envelope, and thought they had it all sorted. They were working from the Central Bank mortgage rules. Her dad is giving her a six-figure gift, and that alone is over a quarter of the asking price!

So they calculated the amount they are both able to borrow based on his salary as the primary income, and the multiple is comfortably within the couple's range. The repayments would be way less than 40% of their likely income.

But apparently the banks don't see it that way!

The couple have spent the last few years paying off their debts early. Their savings arent that high. The banker they approached (a friend) said "Sorry, guys, it doesn't matter that her dad is gifting the deposit. The banks have a rule that if the deposit doesn't mostly come from the individual's savings, they would usually decline the loan. Even if the repayments are really low and the loan to value ratio is great, it doesn't cut any ice with the banks. The Central Bank rules are only a part of it, the banks themselves demand stricter conditions than the Central Bank"

Is this true? Like, if I was to get a major gift from my parents (fat chance!) would the banks tell me "we don't care how big the gift is, all that counts is what you've saved by yourself".

At the end of the day, do banks really act as if a Euro that one saves oneself is worth much more than a Euro that was gifted to you by Mammie and Papa?

I'm so financially illiterate, it seems to me that a deposit is a deposit whether it comes from a gift or not:rolleyes:. Obviously, if a couple were to have no savings at all, that's a bit of a warning flag. But they have saved several months' salary, and they have a big monster deposit from a gift, and the loan to value ratio is good, why wouldn't the bank make the loan?

Anyway, I shouldn't rant. I just want to know, from people who deal with this kind of thing: how do present-day Irish banks decide whether or not to issue loans to people who have large financial gifts which are significantly begger than their actual savings?

TL:DR: It seems the banks are likely to turn down a couple we know for a loan. They have a huge financial gift from a parent, very good jobs and salaries, but a few months' salary saved from their own income. Affordability isn't a problem, but still no loan.

Stheno

What percentage of their net income are the repayments?

They should meet a few banks and then see what they say. But they will want to see a history of saving.

Wesser

I think the couple should put a real mortgage application into several banks and stop doing rough calculations and asking friends for a quick opinion. Just put in a whole pile of formal applications and some of the banks will come up trumps.

erudec

Wesser wrote: »

I think the couple should put a real mortgage application into several banks and stop doing rough calculations and asking friends for a quick opinion. Just put in a whole pile of formal applications and some of the banks will come up trumps.

Is that really good advice?

When you make a formal application, and it gets turned down, I think that might affect your credit rating.

erudec

Dónal wrote: »

They should meet a few banks and then see what they say. But they will want to see a history of saving.

If you feel like it, I'd love to know what do you have in mind when you say "history of saving"? A few hundred Euro per month, or more like four figures?

And how long would you think your average bank would want them to save? Given that they already have a really big deposit, it seems a little on the unnecessary side, to my untrained eye.

Again, you're not the official spokesman for the banks, and you don't owe me any insights.

Ayuntamiento

erudec wrote: »

Is that really good advice?

When you make a formal application, and it gets turned down, I think that might affect your credit rating.

I don't think this is the case. It will be noted on your record that your credit rating was checked X number of times but I don't think the decision as to whether to grant you credit or not is recorded.
If they have some savings and they can make up the deposit then they will be fine. I'd imagine the only thing that could go against them is that they have no record of working in this country. Banks usually like to see you've been in your current job for a year at least.

StupidLikeAFox

erudec wrote: »

And how long would you think your average bank would want them to save? Given that they already have a really big deposit, it seems a little on the unnecessary side, to my untrained eye.
.

The bank will mostly care about 3 things - the central bank rules, the deposit, and their repayment capacity.

Sounds like the first two are covered. If they have been paying rent for the past 6 months or so this will count toward their repayment capacity. Likewise, if you can show they have been repaying other loans (which are now cleared) by X amount this will also count as repayment capacity.

Call into a bank and talk to a mortgage advisor - they will go over the figures and let you know how its looking before a mortgage application is officially submitted.

Wesser

erudec wrote: »

Is that really good advice?

When you make a formal application, and it gets turned down, I think that might affect your credit rating.

No it does not. A history of non repayment of loans results in a poor credit history. Not a failed application.

Please don't ask for advice from strangers on the Internet and then accuse people who give it for free of poor advice.

bee06

Tell them to speak to a good mortgage broker who can tell them the what they need to do to best present themselves as a good prospect for a mortgage.

erudec

StupidLikeAFox wrote: »

The bank will mostly care about 3 things - the central bank rules, the deposit, and their repayment capacity.

Sounds like the first two are covered. If they have been paying rent for the past 6 months or so this will count toward their repayment capacity. Likewise, if you can show they have been repaying other loans (which are now cleared) by X amount this will also count as repayment capacity.

Call into a bank and talk to a mortgage advisor - they will go over the figures and let you know how its looking before a mortgage application is officially submitted.

I'm not going into any bank, cos I'm not buying!

You've got to remember that they have to take days off work to fly to Ireland for a bank meeting. So it's not something they'll do on a whim, most likely.

Yeah, they are renting in the UK. And he's working with the same company for ages now, here and in the UK. She expects to pick up at least part-time stand-in work quite quickly, as the agencies seem to have a good number of places to fill.

So if their savings are just a few thousand euro, and the gift deposit is well north of 25%, and their joint net salaries (assuming she is very unlucky in how many hours she gets) will only take a 30% hit per month from the repayments ...

... does that mean that some of the major banks would be willing to give the loan?

bee06

erudec wrote: »

I'm not going into any bank, cos I'm not buying!

You've got to remember that they have to take days off work to fly to Ireland for a bank meeting. So it's not something they'll do on a whim, most likely.

Yeah, they are renting in the UK. And he's working with the same company for ages now, here and in the UK. She expects to pick up at least part-time stand-in work quite quickly, as the agencies seem to have a good number of places to fill.

So if their savings are just a few thousand euro, and the gift deposit is well north of 25%, and their joint net salaries (assuming she is very unlucky in how many hours she gets) will only take a 30% hit per month from the repayments ...

... does that mean that some of the major banks would be willing to give the loan?

She doesn't have a job in Ireland so they aren't going to take into account any income for her.

erudec

bee06 wrote: »

Tell them to speak to a good mortgage broker who can tell them the what they need to do to best present themselves as a good prospect for a mortgage.

OK, thanks for that and if anyone else feels like going into more detail, I'm very curious.

erudec

bee06 wrote: »

She doesn't have a job in Ireland so they aren't going to take into account any income for her.

She'll have the job for a while by the time they apply. They're moving back in with family for a few months before they move into their own place.

Ayuntamiento

If she's a doctor then she will walk straight into a full-time job over here in any hospital. She doesn't need to do agency work. She can just send her CV to a few hospitals in her area and she'll be sorted. She'll probably regret it when she sees how dire the working conditions are but that's a different story...

Stheno

30% of their income on the mortgage would be high enough

How many children do they have under 18?

Ayuntamiento

Stheno wrote: »

30% of their income on the mortgage would be high enough

How many children do they have under 18?

Is 30% high? Our upcoming mortgage will be 25% of our net monthly income which I thought would be pretty standard/affordable.

Stheno

Ayuntamiento wrote: »

Is 30% high? Our upcoming mortgage will be 25% of our net monthly income which I thought would be pretty standard/affordable.

Im not sure of the figure but when stress testing i think 35 would be the max so 30 is high enough

bmwguy

If I was lending what would jump out at me is:

If she is a doctor and he is a manager in recession proof industry why are their savings so small?
Why do they need a six figure sum as a gift?
Are their new jobs stable? They will be subject to probation periods in new jobs

erudec

bmwguy wrote: »

If I was lending what would jump out at me is:

If she is a doctor and he is a manager in recession proof industry why are their savings so small?
Why do they need a six figure sum as a gift?
Are their new jobs stable? They will be subject to probation periods in new jobs

It's the same employer for him, though, like he's worked with his to-be boss before. They put all their money after essentials into paying off loans early, which doesn't seem irresponsible, so their savings currently only account for a few months income.

erudec

I find it interesting that so many people are interested in the fine detail.

If what I heard were true, banks wouldn't want to go into detail and just say "computer says no" because a hard-wired rule has been adopted that bans deposits composed of gifts.

Stheno

erudec wrote: »

It's the same employer for him, though, like he's worked with his to-be boss before. They put all their money after essentials into paying off loans early, which doesn't seem irresponsible, so their savings currently only account for a few months income.

Is he leaving his current company and starting in a different company?

If so he will need to be there six months before the banks will entertain an application.

For each child they have the bank will deduct an amount off their net income each month.

So they could come back rent from your cousin save for six months and then apply

Wesser

She will need a contract to get approved even a fixed term contract will do. Agency work will not.
It is very difficult to mortgage approval from abroad so that will also need to be addressed.

bmwguy

erudec wrote: »

I find it interesting that so many people are interested in the fine detail.

If what I heard were true, banks wouldn't want to go into detail and just say "computer says no" because a hard-wired rule has been adopted that bans deposits composed of gifts.

The devil is in the details as they say. Of course they will want the finer details, look at the amount of arrears and defaulting going on.

erudec

Stheno wrote: »

Is he leaving his current company and starting in a different company?

If so he will need to be there six months before the banks will entertain an application.

For each child they have the bank will deduct an amount off their net income each month.

So they could come back rent from your cousin save for six months and then apply

The UK branch is wholly owned by Dublin HQ. Literally same employer, same company. Very established.

No kids. Bit of an age gap and she's in no hurry.

erudec

bmwguy wrote: »

look at the amount of arrears and defaulting going on.

I'm not picking on you, but is that comparison valid for the majority of mortgage defaulters?

Please correct me if I am wrong, but I thought the bubble was mostly related to people borrowing extreme multiples (6-plus) of their salaries, dishonestly counting one-off bonuses as base salary, and all of that jazz.

If we were to look carefully through the personal finances of the people who ended up defaulting, isn't it likely that the defaulters are going to usually be people who borrowed more than 5 times their income?

I mean, normally in any list of defaulters, those who owe the most relative to their income tend to be a majority.

I just think that this couple are very different to the profile of people who end up defaulting.

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Ayuntamiento

It sounds like this house won't even be ready to be sold for 6mths at least. If they were to save around 1,600 per month for the next 6mths and they had their work situation sorted the bank would have no problem lending to them.

erudec

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There's a letter declaring it a gift from the parent, I think.

Trish56

I hope the following will be of assistance to them:

• Lender will indeed look for the finer details in so far as they will need to submit 6 months most recent current, savings and Credit card statements, P60's for 2016, 3 months payslips, salary certificates, 12 months statements on any short term borrowings they have or recently completed.
• His employer will also have to submit a letter confirming that he is being transferred from UK to Ireland and it would be best if he had one payslip from the Irish Branch before applying for a mortgage. As a Doctor she should easily find employment but best advice would be to apply to HSE etc. before returning home and prior to making application.
• Under Central Bank Regulations they can borrow up to 3.5 times joint income if only one has employment then it would be 3.5 times his income.
• Lenders stress test mortgage repayments and you must prove repayment capacity by having saved the stress tested repayment over the past 6 months or/and paid rent/paid off loans. For example if the stressed repayment is €1000 per month you must show savings/rent and loan repayments for this amount.
• After stressed repayments are deducted from net monthly pay a couple must have €2,050 net disposable income. Example net monthly pay €3500 stressed repayment = 1k - Net disposable income = €2,500 so qualifies under net disposable income.
• When living and working in the UK you will have to provide a credit rating report from Experian so would advise to check this beforehand in order to ascertain that they have a good credit rating.
• I don't see a big issue in not having saved a huge deposit as more than likely they may have cleared car loans instead of saving and this will be taken into consideration.
• When you apply to a lender for a mortgage it will show up on your Credit Report as an enquiry but will not affect your credit rating however the lender will see who you made a most recent application to.
• There is no problem in a lender accepting a gift as part of the deposit. You just need to provide a gift letter stating it is non repayable.
• My advice would be for them to contact a good mortgage broker (many do not charge fees) and they will be able to process their mortgage application and get them 'An Approval in Principle'.
• There is also a possibility of borrowing up to 70% of the purchase price and buy as a Holiday Home before returning to Ireland.

I hope the above helps as there is a lot of incorrect statements made.
Trish

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zenith

1. Should be possible for friend to let couple in house on caretaker's agreement and agreement to buy by x date.
2. Will give them time to resolve mortgage issues by being in situ.
3. If a 'rent' or nominal rent needs to be paid, that can be reflected in agreed purchase price or actually paid; their choice.
4. If it all goes pearshaped; no work, etc, change of circumstances, it can be unwound quickly with no major outlay.
IMHO.

Trish56

You do not have to prove your ability to save to the lender but prove affordability and as majority of people are paying rent way above mortgage repayments this is acceptable. I stated 'there is no problem witha lender accepting a gift as part of the deposit' I did not state entire deposit.

....... wrote: »

Not strictly true.

I had to prove that savings were not a gift because they showed my ability to save.

I was told that the bank would not allow the entire deposit to come from a gift as that was not showing any ability to save.

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Trish56

We are discussing a totally different scenario so, the OP states they are first time buyers, are currently renting, paying off loans and saving & all that will be taken into consideration when assessing a mortgage under affordability.

Indeed figures issued for mortgages completed for the past number of years show that both First time Buyers and Investors drew down the most mortgages.
I don't understand if you were a switcher how you had to prove your large deposit was not a gift....what deposit?? You should not need a deposit to switch a mortgage or indeed show you have savings for 6 months your mortgage repayments should suffice however having savings and saving regularly would indeed make your case stronger.

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Trish56

I'm afraid you are providing incorrect information you just mentioned that you were a switcher " I wasn't paying rent, I was paying a mortgage"
so you are confusing people with the information you are providing.

I am in the mortgage business for over 40 years so the information I provided is correct and factual and is as per lenders current policy and criteria. You are getting confused between proven ability to PAY and proven ability to SAVE. Proven ability to pay can include savings, rent and loans recently completed.

There are a huge amount of First Time Buyers getting substantial gifts from parents in order to purchase their first home especially in Dublin and this is totally acceptable by the lenders once the applicants can prove they can afford the repayments by evidencing savings, rent and monthly repayments on loans recently completed over a 6 month period. Receiving a gift has always been acceptable towards the deposit and of course regular savings is also required.

I wont be making any further comments on this post so will leave you with the last word as I'm confident I've given the correct response to the OP's question.

....... wrote: »

The banks were applying standard rules (or so they told me). You have to prove ability to save regardless of being a first time buyer. I wasn't a switcher. I'm just pointing out that the banks want proof large cash deposits are not gifts and they want to see proven ability to save. You're muddying the OPs query here in a desire to be right.

Banks distinguish between "life long savings" (which may be matured investments or indeed gifts) and regular savings. But you have to be able to show the regular savings and a gift as deposit will not cut the mustard.