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Charles Prashaw, 11 May
IN THIS article I want to focus on what foreign nationals can expect to
encounter should they wish to purchase a property in Ireland and what
they need to be mindful of when applying for a mortgage.
It can be a difficult and complex process at the best of times and what
information I’ve seen available can be confusing and at times
conflicting. So I’m hoping this article will be a useful resource and
will help guide people in the right direction.
Work Permit
Okay first things first foreign nationals are able to get a mortgage in
Ireland, but the caveat is that lenders will only accept applications
from those who hold a visa status Stamp 4 or a Stamp 1 critical work
permit.
Length of Time in Country
The length of time spent in the country is also a critical determinant
in how much a bank is willing to lend because if you are < 2 years in
the country a bank will restrict the amount they’ll lend to 80% of the
purchase price of a property. However, if you’re living here for > 2
years, you can borrow up to 90%.
Credit Check
And if you are living less than two years in Ireland a bank will insist
on carrying out a non-resident bureau check (NRBC) and this will also
apply to people regardless of their length of time in the country if
they’ve disclosed that they are carrying debt owed outside of Ireland.
Borrowing Capacity
The amount you can borrow from a bank is determined by the Central Bank
of Ireland’s limits and they apply to everyone applying for a mortgage.
And for first time buyers the amount you can borrow is four times your
gross annual income. So, if you or you and your partner are earning
€70,000 per annum you can borrow €280,000.
Banks have been given flexibility by the Central Bank, which allows
them to deviate from the 4 x rule by 15% of their total lending in any
one year to first time buyers and second/subsequent buyers.
And they are being given this leeway to cater for individuals whose
particular circumstances may give a bank some comfort to exceed the
normal limits.
A good reason to exceed the income multiple limits might be when a
first-time buyer applicant has demonstrated a clear ability through
monthly savings and or the amount they pay in rent each month that they
have the capacity to fund a mortgage which is maybe 4.2 times their
gross.
Personal Contribution
Okay next up is the amount you have to contribute towards the purchase
and for a first time buyer its 10% of the purchase price. So, if a
property is costing €300,000 you have to personally contribute €30,000.
Help to Buy Initiatives
Having said that, now is a good time to mention one initiative put
forward by the government in recent years that was aimed specifically
at helping to fast track first time buyers getting a foothold on the
property market.
And this assistance is available to foreign nationals as well.
And it’s called the Help To Buy Scheme (HBS) and it has the ability to
help first time buyers buy a property costing up to €300,000 without
having to have any savings at all.
FTB’s can claim back the lesser of, (a) €30,000 (b) 10% of the purchase
price of a new property (c) 10% of the approved valuation of a
self-build property or (d) the amount of income tax and DIRT they paid
in the previous four years.
So, if a property was costing €300,000, the mortgage amount would be
€270,000 i.e. 90% and the remaining 10% would be funded by the HBS
scheme, provided either the single or joint applicants have paid in
excess of €30,000 in income/DRT tax in the previous four years, and
their annual gross salary was €67,500.
There is another initiative called the First Home Scheme and rather
than going into detail about what it is, I would say you should
familiarise yourself with it and with everything that’s available and
how they could perhaps be used by you.
Additional Costs
I referred to the amount you have to contribute to the purchase price
of a property and it being 10%, but that’s not going to be your only
outlay, there will be others and some of them will be:
- Solicitor fees - I’d say budget in this instance for circa 1.5% of
the purchase price but shop around and ask a number of solicitors how
much each will charge.
- Conveyancing fees - these are separate to what a solicitor charges
for their time, they are a fixed cost that you have to pay to have the
property registered with the land registry registration of your
mortgage etc.
- A structural survey - this is not mandatory and really only applies
if you are buying a second hand property. What you are doing here is
getting an engineer to check out the property for any structural
defects that may not appear apparent to you but they would to them. The
cost here might be in the region of €300 to €500. And it might be money
very well spent particularly if they draw your attention to work that
may need to be done that could cost thousands. Being forewarned of what
this future cost could be might even influence you from continuing with
the purchase.
- A valuation fee - this is mandatory and required by the bank to make
sure the property is equal to or greater than what you’re paying for
it. The cost is about €150.
Documents Required for Mortgage Application
Okay when you’re applying for a mortgage you have to present a number
of documents to your lender and an example of what they are, are as
follows:
- A salary certificate - this is a templated form given to you by the
bank and it will be completed by your employer. It will show your
annual earnings, start date, any bonus or commission payments which are
a feature of your job etc.
- Three recent payslips
- Confirmation of what your income was for the previous two years –
this is available online via Revenue’s myAccount service and you are
looking for your employment detail summary
- Savings statements – 6 months but they may ask for 12 if your account
is held with a bank you are not making the application with
- Loan account statements – as above
- Current account statements – as above
- Photo and address ID
- Stamp 1 or 4 work permit
Repayment Options
And once you are approved for a mortgage and you have identified a
property and you have moved forward with getting a valuation carried
out, next comes your letter of approval.
And on this will be the address of the property, the conditions of the
mortgage approval that you have to satisfy (arrange life cover, get the
property insured etc) the amount you are borrowing, the term of the
mortgage etc and one very important area is what type of mortgage you
are proceeding ahead with.
And your choice in this instance will be between a variable or a fixed
rate mortgage.
If you choose a variable rate, the monthly repayments could rise or
fall and if you choose a fixed rate they will remain fixed for your
chosen period. So, if you choose a five year fixed rate, you have
certainty over what your next 60 monthly repayments will be. And this
route is the one most favoured by first time buyers simply because of
the certainty it gives them and it’s easier to budget and manage their
finances each month.
And here’s an option that many people don’t realise is available to
them and that’s opting for a mortgage that’s part variable and part
fixed. So, you could lock 85% of your mortgage into say a five year
fixed rate with the other 15% on a variable rate.
And why would you do this?
Perhaps you think rates will fall and if they did the variable portion
of your mortgage would fall. Or maybe you want to overpay your mortgage
each month and if everything is on a fixed rate your lender may
restrict the amount you can overpay, whereas if you have a variable
portion you’re not limited to the amount you can overpay.
And it’s important to say that the variable and fixed rates available
to Irish residents are available to foreign nationals who satisfy the
criteria I referred to at the beginning of this article.
That’s about it. I hope those I’ve written this article for have found
it useful.
And I’d say when applying for a mortgage, I’d consider getting the help
of a mortgage broker, someone who’s been down this road many times with
others who were once in your position.
Their help and insights could be invaluable to you. But don’t be afraid
to speak directly with a bank yourself either, they too have super
advisers who will guide you at each stage of the house buying and
mortgage application process.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can
be contacted at liam@harmonics.ie or www.harmonics.ie