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Karl: I’m talking to Stephen Hughes, a director with Irish Mortgage Brokers, about first-time buyers. Stephen, I wanted to ask you, can you list some of the big things that people do when they are going for a mortgage that are actually mistakes? Just the things that you see as a practitioner.
Stephen: You need to save regularly in your own bank account. Don’t save in other people’s accounts. For example, given parents, moving money in and out of bank accounts that are not owned by you is hugely problematic. It’s an AML issue with mortgage lenders, and it’s also an issue with them lacking trust in you because you’re maybe borrowing the money from family.
It just makes it really complicated. The thing is to keep it simple, save regularly in your own bank accounts, try and avoid in the six to 12 months lead up period to making your application to not lending money even to family or friends or getting loans of money from family and friends. Keep it nice and simple and just save regularly in your own bank account.
Karl: What would be other common things that you see?
Stephen: The lack of regular savings is usually problematic. Make sure that you’re doing it in a dedicated savings account rather than in your current account. It’s difficult to work out if you’re a regular saver when your current account is fluctuating.
Karl: Are you better off, by the way, if you want to save as much as you can, to put aside say $1,000 every month and then if you need to maybe take a little bit back or are you better off just to make it $700 every month say instead of taking $300 back the odd time?
Stephen: Yeah, you’re much better off putting in a more manageable amount every month and then if you do have surplus, top it up but that’s a better look than putting too much in and then having to keep taking it back out on a regular basis. It just means that you’re not as good a money manager as they’d like.
Karl: But if you’re paying high rents and trying to save, surely there’s bills that come up so what are people meant to do? Are you better showing higher amounts of savings by going for a bigger figure and maybe take taking it back or a lower amount and show consistency?
Stephen: Taking a lower amount and showing consistency is better.
Karl: Why?
Stephen: Just means that you’re better organised, you know what you’re doing, you’re more in control. Mortgage lenders like to see that. People who have to consistently tap into their savings on a regular basis are just not good at planning. So I think it’s best that you put in, as I say, a manageable amount, a more modest amount but manageable and then top up when you regularly can. It just looks much better for an underwriter if your savings account is growing and all we’re seeing is credits. When we’re seeing credits and then debits, it’s just not as good a look.
Karl: If somebody is paying €2,300 in rent and they apply for a mortgage that would be, say, €2,000 a month, does the lender automatically assume that they have the ability to pay that loan because of that proven ability?
Stephen: Yes. Yeah, that’s it. So even if they have kids or other things that might normally bring down their ability to borrow, they just say, look, you’ve actually been showing that you’re doing it so… Well, it still has to work on the other parameters or the other metrics, as they call them.
So if the net disposable income is not there based on the lender’s criteria, then yeah, there can be an issue. So if they do have kids, you can’t rule it out that having kids and childcare and those kind of things can cause your borrowing power to drop. But having the ability to repay, as I say, if your new mortgage repayment is going to be 2,000 euros and you’re paying 2,300 in rent, that’s a huge statement that you’re going to be able to meet the repayments of the new mortgage.
Karl: And then last of all, just give me one or two real examples, but don’t mention names, of things people have done that just has you scratching your head, like what the hell were they thinking when they’re going for a mortgage?
Stephen: Yeah, it’s back to the start, saving with parents is a really silly thing, and it’s more common than you think. Or saving with other people, where people are taking money out of their bank account and putting it away into a parent’s bank account and then getting it back a year later. Why do people do that? It’s probably because they’re not good savers themselves.
They’re afraid they’ll be too tempted to tap in and take their savings and blow it on silly things. So by giving it away to a parent, the parent mines it. And it’s just, from a lender’s point of view, it’s hard because there’s no audit trail and they’re just having to take, you know, they can’t go back maybe a couple of years or however long you’ve been doing it, and they are then worried that really it’s a gift or a loan from parents, it’s not really money that you’ve saved, there’s a lack of transparency on it.
And it just screams out to a mortgage lender that the person is still effectively acting like a child financially, getting the parent to mine their money, because they can’t manage it themselves. So that’s one of the big things that I would say. Saving your own accounts.
Karl: OK, listen, thanks for that, we’ll be back again soon with another interview!
Stephen Hughes is a director at Irish Mortgage Brokers a firm he has been with since 2004, he has 30 years experience in mortgage advice.
