Mortgage Affordability in Ireland – What Is It? How Does It Work?

A quick practical guide to how lenders assess repayment capacity before approving a mortgage application. 

Understanding Mortgage Affordability

So we just want to talk today about tips for demonstrating mortgage affordability for making your mortgage application. When you’re making a mortgage application, it’s all about the six months prior to submitting the documents, and a mortgage lender assesses what you’ve been doing in the last six months. They assess your ability to repay the potential mortgage. If you’re looking to borrow a certain amount of money, mortgage lenders look at what the repayment will be and what your monthly repayment is going to be. Have you, in the previous six months, demonstrated the ability to repay that mortgage? So, say it’s 1,500 euros per month – have you been saving that amount, or paying rent of that amount, or a combination of both?

Why the Six-Month Period Matters

It’s really important that, whatever the repayment is going to be – say it’s four times your income – you have the ability to meet that repayment. Have you demonstrated this in the six months in the lead-up to it? So, the things that we find problematic with mortgage applications are the big life events, other life events. Buying a house is one of the biggest things you’ll ever do, taking on a mortgage – unfortunately, a necessary evil for buying a house. When you are doing something as big as a house purchase, it is ideal that, in the six months, maybe twelve months, prior to that, or around the time that you’re looking to do this, you don’t have other big life events going on. Now, we know life doesn’t work out as simply as that, but it’s ideal from our point of view, in trying to get a client mortgage approval, that they don’t have the other big life events going on.

Changing Jobs During a Mortgage Application

Just a few of them to run over – I suppose the big one would be changing jobs. People who are thinking about buying a house and getting a mortgage can also be looking to change their career, looking to move on in their career. Although we’d never discourage anyone from doing the best they can for themselves in their career, what’s hugely problematic about that is that, if you change jobs just as you’re about to make your mortgage application, or if you’re in the middle of your mortgage application, it can cause real problems because you’re most likely going to be on a probation period with your new employer. Even if you’re getting a pay rise, and a substantial pay rise, it is still problematic because, if you’re making the mortgage application and changing jobs at the same time, the mortgage lender will probably postpone or defer your application because you’re going to be on probation. So getting a new job with a big raise might seem like a common sense choice in terms of being able to repay the loan, but if it reduces your job security (by being on probation instead of permanent) then it’s actually not good from a mortgage application and credit perspective (always a strange one, but true).

Why Probation Periods Cause Issues

They want to see that you’ve settled into the new job. They want to make sure that you’ve settled in and that you’re going to do well in the job. So they most likely will not let you draw down that mortgage within six months. They might approve you and give you an approval in principle, but one of the conditions of approval will be that you cannot draw down until you’ve completed your probation period.

Having a Baby and Mortgage Affordability

Another big one is having a baby. Again, we never want to discourage people from making their way in life and enjoying life and creating a family and all the great things that go with that. But again, it is hugely problematic having a baby, going on maternity leave, and taking on childcare commitments around the time that you’re making your mortgage application. It’s hugely problematic and, probably not very politically correct to say it, but mortgage lenders will discriminate if your finances take a hit, which they inevitably will when you’re having a baby and you’re going through everything that comes with that. They will discriminate against you if your finances don’t look as good as they did prior to maybe becoming pregnant or starting to have the child.

Planning Ahead Where Possible

Ideally, what you do is try and get your house and your mortgage approval before that happens. I know that, quite often, having a baby or getting pregnant is one of the things that motivates people to look at buying a house and taking on a mortgage. But, if you can plan it out a little bit better, then ideally what you do is get your house in order first before you get pregnant. Again, as I say, things like reduced income, maybe on maternity benefit, and maybe no income for a period of six months are hugely problematic and will definitely affect your affordability. You won’t be able to save as much as you were previously. So it’s really important that you can try and get approval before that happens.

Childcare Costs and Affordability

Then you’ve got to look at things like when you go back to work. Are you going to have childcare? What’s the situation with that? Again, that can affect affordability. Mortgage lenders do factor that in. It’s effectively like having a loan or a car loan, and it is a financial commitment having childcare every month. So again, if you can get your mortgage approval before you have your baby, that’s the best way to do it. Mortgage lenders do apply common sense, and they are all human beings as well, the people who are underwriting these mortgages. They’ve probably all had babies and gone through all of that as well, and gone through the process of raising a family, but it’s just a bad look for your application.

Why Timing and Presentation Matter

If you do that – you’re having a baby at the same time as trying to get mortgage approval – it’s hugely problematic. Even though underwriters do know that these things happen in life and that, at some stage, people will probably have a mortgage and then have kids, maybe one, two, or three kids, whatever, they still know that people will meet their mortgage repayments. But, when you’re making that application, it’s all about the aesthetics. It’s how it looks. So, for just that period in the lead-up to your mortgage application, the ideal scenario is that you don’t have any other complications going on. You’re just working away, saving, paying your rent, whatever, and ideally have no loans as well. That’s the best way to present it.

Weddings and Other Major Expenses

The last thing I suppose we’d get into is a wedding, another big life event. Again, think about it – organising a wedding, paying for a wedding, and there’s going to be money flying out of the bank account for that in the lead-up to the wedding. So again, if you’re trying to do a wedding and a mortgage application within a similar period of time, it’s just a bad look. Again, mortgage lenders do realise that this is a one-off, once-in-a-lifetime kind of thing, but it just doesn’t look so good on the bank statements if you’re taking thousands out to pay for hotels, cars, bands, honeymoons, all of that kind of thing.

Keep Things Simple

So again, it’s all about timing. As I say, mortgage lenders are reasonable. They do understand that people have lives to live. But again, it’s just that six-month period where you’re trying to demonstrate your ability to repay this mortgage. If you keep things really simple in your bank accounts, that is ideally the best thing, the best way to go about it. Just keep it nice and simple and boring, get that mortgage, and then get back to enjoying life after that. There’s my tips.

This piece was done by Stephen Hughes who is a director with the firm and part of the business since 2004.