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First Time Buyers

Thursday, 15 April 2010

Liam Croke: Money Expert

Liam has worked in the financial services industry for the past 21 years and seen by many as an expert in the field of personal finance. He is a qualified financial and mortgage advisor.

In the past he has held senior management positions with two well known financial institutions along with one of the "top 5" accountancy practices in Ireland.

Liam gives his advice and wisdom on a daily basis to those who are just starting out to high net worth individuals. He currently works for a financial services company based in Limerick.

He is frequently asked to contribute and comment in all areas relating to personal finance on both national and local radio stations. You will have heard him for example recently on RTE's "The Mooney Show" and on Newstalk's "The Right Hook."

Liam was invited to make a presentation to the Joint Oireachtas Committee on Social & Family Affairs on trends and levels of personal debt in Ireland. He made his presentation to the committee on the 24th June 2009.

Liam is author of 4 personal finance books:-

. The best selling "The Mortgage Maze Explained" published by Currach Press in 2006.
. The best selling book "Your Money Your Life - Managing your finances in today's Ireland" published in 2007.
. "I'm Broke! A teenagers guide to Money" - Published by Crabtree and distributed in the UK & USA in 2009
. "Stash or Splash" which is being released in Ireland and the UK in September of this year.

Liam previously wrote a weekly personal finance column for The Sunday World entitled "Mr. Cash - How to Save it, Spend it, Earn it" and has also written articles for the Sunday Business Post, the Evening Echo, the Sunday Independent, the Irish Sun, Prudence Magazine to mention just a few.

First time buyers - Everything you need to know when applying for a mortgage:

What is the current market like for first time buyers?

The mortgage market has been transformed over the past 12 months and it seems much more difficult than it has ever been to get a mortgage, or is it? The days of the 100% mortgages are long gone and will probably never return and in my opinion that is not a bad thing at all.

Banks are a lot more nervous about lending their money so you have to show that you have the capacity to meet your repayments.

Many banks have announced that they will be raising their mortgage rates and this will reflect in an increase in monthly repayment costs for first time buyers. It could also impact the amount that lenders is prepared to advance to you.

How important is preparation before you apply for your first mortgage?

Although the market has changed substantially since the onset of the credit crunch it is still possible to get a mortgage, but only if you do your homework first.

You have got to prepare well in advance and know what lenders are now looking for.

What do you do to prepare?

. Do a Credit Check
. Get your accounts in order
. Show that you have 'repayment capacity'
. Apply when you are ready

Do a Credit Check:

In today's market where banks lending criteria has become much stricter the importance of having a good credit history has never been so important.

A lender will do a credit check on you with the Irish Credit Bureau to see if you have a history of repaying your current and previous loans on time. If you have missed or were late with one repayment then you can forget about it!

Banks have enough problems with arrears on existing customers and do not want to add to it and if they consider you a high risk then they will just not take you on.

Before you make an application with any lender do a credit check on yourself and make sure that what is recorded on the bureau is correct. Often people are refused because of a "poor repayment history" and they have no idea what this means so be prepared and get a check done on yourself and include a copy of it when you make that application.

Get your accounts in order:

Banks will also "forensically" go through your banks statements for the previous 6 months and if they see anything like unpaid fees, referral fees or late payment fees on your account they will not like it one bit and if there is a pattern of this happening on your account they will refuse your application no matter how much you are earning.

Manage your accounts well and make sure that you repay on time all of the time!

Show that you have 'Repayment Capacity'

This simply means that you have to clearly demonstrate to them that you can afford the monthly repayments based on the amount you are borrowing.

How can you show this?

If you are looking to borrow €230,000 the bank is likely to "stress test" this amount at somewhere between 5 and 6% depending on your lender. So, if this figure amounts to let's say €1,160 per month they are going to want to see clearly that you have this amount in your account as it stands at the end of each month.

If you have nothing left in your account at the end of each month then how you are going to be able to make repayments of €1,160 each month? That is what lenders will be asking themselves and if there is no evidence that you can, then you won't get the loan. Some lenders will however take into account what rent you are currently repaying as a means of showing "repayment capacity."

Apply when you are ready:

There is no point in making an application if you cannot meet all of the above requirements. Rather than making an application and being turned down you should operate your accounts for say 3 to 6 months clearly showing repayment ability. That way your loan will be successful and you will have no black marks against your account.

What are lenders offering at the moment?

With house prices falling rapidly over the past 2 years, banks are now understandably nervous when it comes to the amount they are prepared to advance with some cutting back to 80% of the purchase price having previously offered up to 95%.

Here is a guideline of what some lenders are offering at the moment:

What percentage of your mortgage are banks offering?

Lender Maximum loan to value

PTSB 90%
Ulster Bank 90% - 95% (95% offered in some developments)
AIB 92%
BOI 92%
EBS 92%

Should you apply to several financial institutions at the same time?

I would not apply to several institutions at the same time. You should know and prepare in advance what criteria each lender has and you should know what they are going to advance to you before you even submit an application. You should do your research on each lender and make sure that the lender you choose is best suited to you in the long term.

Narrow down the lenders that are best for you and apply to the top 2.

Every lender will also carry out a credit check on you and they will be able to see who else has carried out checks. It may raise their suspicions if they see that 5 other lenders are doing the same. If other lenders are not approving your loan they may ask "why should we?".

Questions you should ask include:

1.How much they are prepared to advance to you
2.What are their interest rates like?
3.What is their service like?
4.How flexible are they - can you make overpayments, underpayments, interest only payments, deferred start payments etc.

How are savings, family gifts, loans, etc seen through the banks eyes?


Savings are key to a bank as the minimum you are going to have to contribute to the purchase will be at least 8%. So, if you are purchasing a property costing 250k then you are going to have to come up with 20k for your 8% contribution. They don't want you to have to borrow this amount and won't approve a loan if you have to. They are likely to accept a gift from a parent or blood relative for a portion of the amount required but not all!

Having your 8% requirement does not stop there either as they will want to know about how you are going to furnish the property, how are you going to pay for legal fees etc. Again they don't want you to have to borrow for these things and neither should you do that, so make sure that you have budgeted for these things before you decide to purchase and make sure you have the answers for the bank when they ask you!

Family Gifts:-

If you are getting a gift of a portion of the 8 or 10% requirement then with most lenders this is fine although they would like to see the majority of it coming from your personal savings. The person giving the gift however will have to sign a legal document waiving their interest in the property given that they have made a financial contribution to it.


If you have a loan then this will impact on the amount you can borrow. It is not the amount that is o/s that impacts but how much you pay each month on this loan.

For Example:-

If you earn 40k per year and have no loans you could expect to borrow a maximum of 235k over 35 years but if you had a car loan and you were paying 200 each month then this would mean that you could now only borrow 200k, a drop of 35k.

So, for every 200 that is going towards another loan would decrease your borrowing ability by about 35k - a big drop!

The other consideration with a loan is that you have to have an impeccable repayment record on your loan. If you have missed payments or you are regularly late paying them then the chances of you getting approval would be greatly reduced regardless of how much you are earning! So, make sure you are paying on time and to double check this get a credit check carried out on yourself with the Irish credit bureau. The cost is just e6.

Will your rent be taken into consideration?

Yes, some lenders will take into account what rent you are currently repaying as a means of showing 'repayment capacity'.

Know how much you can afford and how much you will be approved.

Many people make the mistake of finding out first from the bank they do their day to day banking with how much they qualify for. They then automatically assume that this is will be the same with all other lenders.

I have done a comparison with a number of lenders in the market and found a significant difference between what they are prepared to lend.

Two examples of what lenders are prepared to advance:

Example 1:-

Single person (FTB) earning €40,000 per annum, no loans, 30 years of age.

Lender Mortgage Amount
PTSB €200,000
Ulster Bank €180,000
AIB €240,000
BOI €200,000
EBS €235,000

Example 2:-

A couple, first time buyers, both earning €35,000.. He has one loan where he repays €240 each month.

Lender Mortgage Amount
PTSB €295,000
Ulster Bank €350,000
AIB €310,000
BOI €315,000
EBS €405,000

It is so important that you get pre approved in the first place before you start looking for your perfect home and it may even put you in a very strong position if you are bidding on a second hand property because you have mortgage approval with no house to sell.

Make sure the property meets your lifestyle and more importantly your monthly budget!

A word of caution though, just because you could possibly borrow €240,000 does not mean that is the amount you should borrow!

Remember that you will have to pay utility bills and insurances not to mention the TV licence! Under no circumstances should you agree to a loan that you will not be able to pay or struggle with.

Know your lender, remember you are choosing them as much as they are choosing you. You are still the customer.

Before selecting a lender it is so important that you do your research on their history (are they a lender that consistently offers attractive rates) and their reputation (customer service good? Are they helpful with people who are in mortgage difficulty for example)

When you are looking for a mortgage never ever take the first one you have been offered. What you have got to try is match the bank with your needs taking into account, - rate, how much they are willing to lend you, service, flexibility, reputation and so on.

Be honest.

Never lie about your credit history, the chances are the mortgage lender will find out anyway which will significantly reduce the chances of you getting a mortgage. Honesty is the best policy, address the issues you may have and provide evidence to support your suitability.

Profile of the type of candidate lenders want to borrow to:

1. In permanent employment for at least 6 months
2. Evidence of a good repayment history including a good profile on the Irish Credit Bureau
3. Good conduct on working accounts
4. Evidence of regular savings being built up each month
5. Full repayment capacity

(If they had the mortgage for the last 3/6 months, they would have been able to make payments on it. This can also be shown via savings, rent, loans that are going to be closed prior to the mortgage etc.)

The days of 100% mortgages may be gone but with a little bit of planning and some expert advice you can still acquire a mortgage and negotiate a payment plan that works for you.

Additional / Misc' Info:


"Following the earlier announcement by Bank of Ireland - now EBS have announced that from May 1st they will be raising mortgage rates. EBS say the rates will rise by 0.6%. Both banks have given a bit of notice of these increases - unlike AIB. It was widely assumed that lenders would all be raising rates - so anyone on a variable rate could have fixed weeks ago if they wanted too.

Moving to a fixed rate with BOI or EBS is still a possibility if you are currently on a variable rate mortgage with them - but do it soon if you want to beat the increase. The banks should not charge you for switching to a fixed rate.
Bank of Ireland will be increasing their mortgage rates from Friday 16th April.

Most rates will be increased by 0.5% - fixed rates could be rising by more than that. ICS - which is owned by BOI will also be increasing rates next week.

BOI were offering payments of €750 for mortgage switchers towards legal fees - but this offer ended last week.

AIB and PTSB recently raised mortgage rates and EBS are expected to announce rate increases in the next few days also.The ECB rate was left at 1% yesterday - it has been unchanged now since May 2009."