By Dave Kavanagh
When applying for mortgage approval, there are several factors that the lenders take into account when considering your application. The three main ones are, Multiples of Salary, Net Disposable Income and Proven Ability to Repay. Until recently, the standard guideline for the maximum borrowing permitted, was 3.5 x gross annual income. Since the start of this year, this was increased to 4 x income for first time buyers. However, with interest rates on the increase, at least one lender has already adjusted other criteria for applicants seeking to apply for the increased multiple. One of the factors adjusted, is the second one, Net Disposable Income. This refers to how much applicants will have left over after paying their mortgage each month, to cover all of the other essentials. This differs from lender to lender, but also depends on the family dynamic. For example, a couple or individual with no children will not be expected to need as much as those with perhaps, 3 children, due to the increased cost of living for those children. The last of the main criteria examined is Proven Ability to Repay. For example, if the proposed mortgage repayment is €1,500 per month, the lender will usually “stress test” this repayment by calculating what the figure would be if rates increased by 2% (often not done if people opt for a fixed rate). So they may be looking for evidence that a figure of €1750 is affordable. This could be illustrated by regular savings, rent, or loan repayments on a loan about to be cleared, or a combination of all. Advance planning can give you a much higher probability of getting approval by considering these factors. Obviously, there are many other factors to consider, such as how you conduct your current accounts and how much you have saved. For first time buyers, at least 10% of the purchase price is required, while for non first time buyers, at least 20% deposit is required. One often overlooked consideration, is to make sure that you qualify for mortgage protection, so this is something to look at in the early stage to make sure it would not be an obstacle to finalising an application.
Dave Kavanagh QFA has been advising people financially for over 25 years. For quotes or for information (with no cost or obligation) he can be contacted by emailing Dave directly on firstname.lastname@example.org or you can use the contact form on www.financialcompanion.ie or @Davekav_advice on Twitter and Instagram. Combined with his previous role of gym/nutrition adviser, he regularly gives talks and workshops at seminars and events for groups, companies and government departments on financial wellbeing, positivity and motivation. As heard on RTE 2FM , LMFM and TV3.