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info@covermore.ieWhen giving you a mortgage, lenders use different criteria to decide how much they are willing to lend you and they must follow specific Central Bank of Ireland rules when doing this.
The Central Bank of Ireland’s rules applies limits to the amount that lenders in the Irish market can lend to mortgage applicants. These limits apply loan-to-income (LTI) ratios and the loan-to-value (LTV) ratios for both principle dwelling homes and buy-to-let properties and are in addition to the lenders’ individual credit policies and conditions. For example, a lender may have a limit to the percentage of your take home pay that can be used for mortgage repayments.
Loan to income limits
A limit of 3.5 times your gross annual income applies to applications for a mortgage for a principal dwelling home. This limit also applies to those in negative equity applying for a mortgage for a new property, but not those borrowing for a buy-to-let property.
Lenders have a certain amount of discretion when it comes to mortgage applications. For first-time buyers, 20% of the value of mortgages a lender approves can be above this limit and for second and subsequent buyers 10% of the value of those mortgages can be above this limit.
Loan-to-value limits
LTV limits mean you need to have a deposit of a certain amount before you can get a mortgage. There are different limits in place depending on what category of buyer you are.
- First-time buyers need to have a 10% deposit
- Second and subsequent buyers need to have a 20% deposit
- Buy-to-let buyers need to have a 30% deposit
Lenders have a limited amount of discretion when it comes to these limits and in a calendar year can make exceptions for:
- 5% of the value of mortgages for first-time buyers
- 20% of the value of mortgages to second and subsequent buyers
- 10% of the value of buy-to-let mortgages
These rules don’t apply to switcher mortgages and housing loans for restructuring mortgages that are in arrears and pre-arrears.
How much can you afford to borrow?
When making a mortgage application it can be tempting to apply for the maximum amount possible. However you need to make sure you will be able to cope with future events such as an increase in interest rates, having children, redundancy or illness.
If you have other loans or debt, your lender may offer you a lower amount, ask that you pay off these loans or refuse your application.
The shorter the term of your mortgage, the higher your monthly repayments, but you will pay less interest in total. With a longer term mortgage your monthly repayments will be lower, but you will pay more in interest over the lifetime of the loan.
Example:
| Mortgage amount | Term | Interest rate | Monthly repayments | Total cost of credit |
|---|---|---|---|---|
| Difference in cost of credit between 20 and 30 year terms | €37,348 | |||
| €200,000 | 20 years | 3% | €1,109 | €66,206 |
| €200,000 | 25 years | 3% | €948 | €84,526 |
| €200,000 | 30 years | 3% | €843 | €103,554 |
Even a small difference in interest rates can have a big impact on the overall cost of a mortgage.
Example:
| Mortgage amount | Term | Interest rate | Monthly repayments | Total cost of credit |
|---|---|---|---|---|
| Difference in cost of credit between interest rates | €11,853 | |||
| €200,000 | 20 years | 3% | €1,109 | €66,206 |
| €200,000 | 20 years | 2.5% | €1059 | €54,353 |
When you apply for your mortgage, and over its lifetime, it is important to get the lowest rate possible as it can lead to significant savings.
As well as mortgage repayments there are other costs to consider when it comes to buying a home.
In accordance with the provisions of the Consumer Credit Act 1995, the following are for your attention:
Warning: Your home is at risk if you do not keep up payments on a mortgage or any other loan secured on it. The payment rates on this housing loan may be adjusted by the lender from time to time.
Note: The above notice in respect of adjustments to repayment rates will not apply during any period when the loan is at a fixed rate.
In accordance with the provision of the Consumer Protection Code (CPC) 2012 the following are for your attention:
Warning: If you do not keep up your repayments you may lose your home.
Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating which may limit your ability to access credit in the future.
The following warning applies in the case of variable rate loans:
Warning: The cost of your monthly repayments may increase.
The following warning applies in the case of fixed rate loans:
Warning: You may have to pay charges if you pay off a fixed rate loan early.
The following warning applies in the case of debt consolidation loans:
Warning: This new loan may take longer to pay off than your previous loan. This means that you may pay more than if you paid over a shorter term