Will banks consider me for a mortgage?

ottolwinner

I own three apartments no loans outstanding

I wish to purchase a house or modify a property for my own needs

ive no cash savings worth talking about. Will a bank consider me for a mortgage approx €250k?

any professional finance advice welcome.

Buddy Bubs

I presume you mean will you get a mortgage without a deposit ?

ottolwinner

Yes I suppose I should have phrased it that way.

Peregrinus

Are you willing to mortgage the three apartments you already own as well as the house you will buy/modify in order to secure the loan?

ottolwinner

Well I’m willing to do something. The value of them would outweigh the mortgage, would a bank look for that level of security on the mortgage?

Peregrinus

They always want the value of the property secured to exceed the value of the loan advanced — they like that margin of comfort. One of the reasons they require a deposit is that, if you're only mortgaging the house whose purchase you're financing, they won't lend you 100% of the purchase money.

That objection goes away if you're offering other properties as security.

But the requirement for a deposit is not just based on this. Central Bank guidelines, which lenders must follow, tell the lenders that they should require a 10% deposit. But they also allow lenders to relax this requirement in a proportion (up to 15%) of the loans them make. You want to persuade a lender to put your loan in that category. And your argument for doing so is that you can offer lots of security; you may be borrowing 100% of the price of the property that you are financing, but you are providing security for (say) 150% of that amount, and that's a circumstance which should make them feel comfortable with giving you a reduced-deposit or no-deposit loan.

There's another factor, though. Although the banks like having lots of security they really, really don't want to have to enforce the security. So they want to know that you can service the loan. And if you have no savings at all, that will make them worry that you are living up to the limit of your income, spending everything you earn, and therefore might have difficulty find the money for regular monthly payments. So you'll need to satisfy them about why it is that you have no savings, and that this isn't something that calls into question your ability to make regular loan repayments.

ottolwinner

Really appreciate your reply that makes a lot of sense. Thank you.

daheff

https://www.boards.ie/discussion/2058343923/will-banks-consider-me-for-a-mortgage

do you have a regular income? if you don't how would you expect to repay the loan without selling (at least) one of the other properties?

none of this is professional advice

ottolwinner

yea I do have a regular income along with income from current rentals.

Had a meeting with a bank today. Needless to say they said. We have never had this situation before. I would have thought they might’ve. They said they would need to crunch the numbers and come back to me on it.

Jim2007

https://www.boards.ie/discussion/comment/121948142#Comment_121948142

As all of your wealth appears to be concentrated in a high risk asset class you can expect that any financial institution will require a very large margin of safety and of course it will depend very much on them finding an underwriter willing to take on the risk (three customers with a property each in three locations is a much lower risk than one with three properties).

esker72

It may be easier although a little more expensive rate wise to take out a mortgage on the rental property assuming the rent is strong enough to support the repayment. It also means that you can write the interest off your rental income when it comes to paying your tax.

Jim2007

https://www.boards.ie/discussion/comment/121950514#Comment_121950514

I'm not surprised they not seen this situation before…. From a risk point of view you have basically done the same as someone who would take all there money and invest it on a single company in stock market.

• You are fully invested in a high risk asset class
• You have failed to diversify within that asset class

And now you are asking to double down on that bet with someone else's money with little or now skin in the game…. From the other side, the bank and underwrite can make the same bet on three people thus reducing their risk….

Generally speaking you'd be well advised to dramatically lower your exposure to the property market.

Buddy Bubs

Heavily exposed to local property market

3 existing properties and a job and no cash

Those properties must not be generating cash for you so your entire portfolio is based on price appreciation speculation.

If that stops where are you?

The banks own economists will have a prediction where property prices are going and the banks lending policies will be influenced by that

ottolwinner

out of interest are any of ye working for financial institutions and could I ask a few questions in pm? Thanks

Jim2007

https://www.boards.ie/discussion/comment/121953083#Comment_121953083

MOD WARNING: I would very much doubt that anyone currently working in this area would engage in such communication as they have no idea who you are and it could impact their employment. Likewise you have no idea who you are communication with either or the consequences for you.

ottolwinner

Thanks Jim I hadn’t considered any of that. And that’s why we have mods. Thanks

Buddy Bubs

https://www.boards.ie/discussion/comment/121953083#Comment_121953083

I did in the past but like Jim says it's irrelevant. It won't help you, only the current banks officers can help you.

From the banks point of view, think risk, that's what drives their decisions

Hawkeye123

https://www.boards.ie/discussion/comment/121948142#Comment_121948142

It is an interesting question. If you had a portfolio of shares, the bank would say it's value cannot be guaranteed. I wonder if they will say that so you will agree to using more collateral.

JVince

For the OP.

If one of the 3 properties is your primary residence at present it might be worth selling that as any value increase is tax free.

Once you start renting it CGT starts to accumulate after 12 months as a percentage of time it is rented v time as primary residence.

Eg, if you have owned it for the past 6 years and rent it out for the next 7, there will be CGT on 50% of the uplift from 2018 even if the price only moves up 10% by 2031. Or if value fell 10% the CGT would still apply.

So if one is a pdh, sell it. Buy a new pdh with max mortgage if you wish and then look for another investment property if you really want to be deep in the sector - or maybe look at a small commercial property to have a small element of diversity

Jim2007

Mod: stay on topic please.

Jim2007

https://www.boards.ie/discussion/comment/121953570#Comment_121953570

It is all about risk, understanding the nature of that risk and trying to achieve a given objective at the lowest exposure possible. I don't expect the OP to discuss his financial affairs in detail here, but somehow he has managed to acquire 3 properties debt free. But as it the OP has a very high exposure to financial risk for no good reason… it's paid off, it does not appear to be rented out, so I see no reason to leave it on the table…

phormium

https://www.boards.ie/discussion/comment/121952246#Comment_121952246

This is not correct if the money being borrowed is not being used for the rental property, if OP borrows against one of the rentals it's the use of the money that determines whether it qualifies for tax relief off the rental income. If being used for a new residence for OP then regardless of being borrowed against a rental it will not be allowed for interest relief.

Donald Trump

https://www.boards.ie/discussion/comment/121952141#Comment_121952141

Not when the one with three properties is raising finance for a fourth. If you were comparing three borrowers each buying one house with a fourth borrower borrowing to buy 3 house then I'd agree. That doesn't appear to be what the OP is asking though.

I'd be slow myself though to put the mortgage against all four like has been implied in other posts.

Regardless, I would think that the working plus income from three rentals but zero savings would need explanation and a good reason.

ottolwinner

I suppose to give it proper context. The property was a building i built back in 2001. It comprises of 4 apartments in suburban setting. Land was left to me in a will. I went to the bank and secured the loan to build them and paid off remaining mortgage last year as the mortgage was coming off fixed term and I didn’t want the variability of interest rates. I cleared the remaining debt hence why I’ve no cash savings. Rents are modest but below market rate due to Rpz requirements. My reason for the initial question was just to see would banks even consider me for a mortgage based on previous track record and that I have a wish to secure a house of my own. I used to live in one of them but moved out with work elsewhere years ago and it’s rented since.
thanks for all the replies and opinions. I’m not expecting much more but just wanted to post the question as currently I’m in that typical situation of many. Paying high rent myself and cash poor and asset rich. I could sell but was just considering all other options as the income is a steady one.

Donald Trump

Without knowing (or asking) the rental + employment income, you would seem like a relatively low risk applicant to me. But I never worked in retail banking so I wouldn't have any idea how they allocate exemptions