Ireland Financial News – Mortgages & Banking

Growth in mortgage lending dropped below 10% for the first time in more than 20 years in July.The Central Bank says its latest figures underline how much activity in the housing market has dropped.

The amount of money owed in mortgages grew by 9.6% in the year to July – the first time this figure has been below 10% since late 1987.

The monthly increase in mortgage lending came to less than €1bn, which the bank says is less than half of what was being recorded this time two years ago.

Meanwhile, IFG, which is involved in mortgage broking, this morning said it expected a 40% drop in new mortgage lending this year.

New from RTE

Mortgages scare some people and if you are reading this because you are considering a mortgage then hopefully it will help you realise that while buying a property is a big undertaking, getting a mortgage doesn’t need to be. In this article there are some questions, answers, and a few general tips to bear in mind.

Which is better, a bank or a broker?
Obviously I have a bias towards brokers, a good brokerage with at least 12 agencies will be able to give you a huge selection of choice across the market and explain the pro’s and con’s of each loan that may suit you. A bank on the other hand will give you a choice of only their own products, as I always say ‘has your bank ever sent you down the road to a different institution’? If the answer is ‘no’ then you get the picture, independent choice is what brokers are for. However, if you are comfortable going direct then brokers may not be the answer for you, currently 60% of the market for residential mortgages is via brokers, so that means that 40% don’t use brokers.

What do banks want when you apply for a mortgage?
Generally banks will look for proof of your ability to repay a loan. When a bank gives you a mortgage they are reliant on you paying that loan off over time and doing so in a timely manner, the difficulty is that once you have the loan they can’t just ‘take it back’ so they only have one little snapshot in time with which to make a decision that has to be a good call for the next 30 years. That is not easy, having said that, the majority of people honour their debts so banks will look for things like a ‘proven ability to repay’ which is perhaps the strongest reference a potential borrower can have [things like paying rent or other loans in the past come into play]. You must also have sufficient income to repay the loan and also a deposit.

How much of a deposit do you need to buy a house?
Estate agents will generally say 10% at signing of contracts, however, if you get a 92% mortgage then it will be 8%, the main thing is that sufficient money is put down at the time contracts are signed so that if the buyer pulls out they suffer a decent loss, the ability to suffer loss for not honouring your end of the deal is one of the few things that make the property market work, otherwise people would pull out of deals all the time. Why? Well, say you had bought off plans in 2006 and paid no deposit, the property prices fell, if you didn’t stand to lose your deposit you might gladly walk away from the deal. 100% mortgages are now a thing of the past so suffice to say that in 2008 you will need a deposit to buy a property in Ireland.

What documents or evidence will a bank look for?
This ties in with the question about what banks want, in order to prove you can repay the debt you make your case via an application [if you use a broker they do all of this for you and present it] which has documents to back up the story of your own situation, if you are employed then this will generally be things like P60’s, payslips or wage slips, a salary certificate, bank accounts [or more accurately bank statements], savings statements and other financial information. The lender looks at all of this, and uses it as evidence in making a decision on whether to lend or not, there are other factors at play such as affordability, and the loan to value of the purchase but assuming all of these are within the required boundaries it is your application upon which approval will hinge.

Now that we know a little about what banks want it is easier to talk about what steps you take to get a mortgage. Firstly you will need to gather all of your documentation, secondly you will need to go to your broker or to a bank with that documentation for an initial consultation (this can be done remotely too) and then of course you will need details of what it is that you hope to buy. As long as you deal with competent professionals the process is relatively stress free and straight forward, mortgages are nothing to be scared of.

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THE VALUE of new mortgages advanced in the three months to June dropped 13 per cent, bringing the decline for the first half of this year to 16 per cent, new figures reveal.

Tighter lending rules and declining demand amid falling property prices and higher bank funding costs have brought activity in the mortgage market in value terms below levels last recorded in 2005, according to statistics pooled by the State’s mortgage lenders.

Just over 35,000 new mortgages worth €7.5 billion were advanced in the second quarter of the year, compared with 41,000 mortgages worth €8.7 billion during the same period last year.

Some 63,000 new mortgages totalling €13.8 billion were advanced in the first half of this year compared with 79,000 worth €16.5 billion during the first six months of 2007.

The first-time buyer and trading-up sectors of the mortgage market showed the biggest declines in the first six months as nearly all lenders raised interest rates and changed their rules, seeking large cash deposits from new borrowers.

However, the rate of decline on first-time mortgages slowed in the second quarter compared with the first three months.

The first-time mortgage market is down 28 per cent in the first half of the year on last year, while the trading up share of the market fell 26 per cent.

Although the market is traditionally quieter in the first quarter, the value and number of new mortgages rose in the second quarter compared with the first three months of the year.

These latest mortgage statistics are likely to be confirmed in the coming weeks when the Irish Banking Federation and accounting firm PricewaterhouseCoopers (PwC) publish their official report for the second quarter of the year.

Banks and building societies advanced 28,500 mortgages worth €6.2 billion in the first three months of the year, down 19.7 per cent in value terms on last year.

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Fixed Rate Mortgages

Make budgeting easier with repayments that stay the same for an agreed period of time
More control
Give yourself security and peace of mind of knowing in advance what your monthly repayment will be until the end of your chosen term.

Flexible Tracker Mortgages
Flexible Tracker Mortgages offer a guaranteed margin above the base interest rate set by the European Central Bank (ECB).

Flexible Tracker Mortgage with ufirst discount
Avail of a Tracker mortgage with a reduced rate plus a valuation fee refund

First Time Buyer Mortgage
Step onto the property ladder with a First Time Buyer mortgage
Most Banks now makes it easier for you to step onto the property ladder.

Switcher Mortgages
Swich your mortgage from one financial institution to another…

Top-up Mortgages
Use the increased value of your home to release money you can spend now.
Release the equity in your home to pay necessities or luxuries: things you need now, or things you’ve always wanted:

extend or renovate your home
buy a second property
refinance short-term debt
pay educational expenses
take a once-in-a-lifetime holiday
pay for private medical expenses.

Convenient and cheap borrowing
Topping up your existing mortgage with any Bank, is a convenient way to borrow. It’s also economical – the interest you pay is based on current mortgage rates.

Investment Mortgages
The Investment Mortgage tracks the ECB rate which means the margin is guaranteed for the life of the loan. It is a variable rate of interest with a fixed margin. The interest rate you pay depends on the amount you wish to borrow and the value of your home (loan to value).

Home Run Mortgage – Affordable Housing
If you are buying a house in a Local Authority Affordable Housing Scheme and need a mortgage that is tailored to suit your needs, then look no further. Most Banks offers an affordable housing product called ‘Home Run’ which offers you a head start in your first steps on the property ladder.

The ‘Home Run’ mortgage offers you:

A wide range of fixed and flexible rates.
100% Finance based on the purchase price.
Maximum Loan amount of €250,000 to €500,000.
Maximum term of up to 20-40 years.
Flexible repayment options on Tracker products including lump sum payments and additional payments.
How to avail of the ‘Home Run’ mortgage
If you would like to apply for a ‘Home Run’ mortgage you must be allocated with a property by your Local Authority before applying for the mortgage. You must also have been issued with a ‘Confirmation to Lender’ certificate from the Local Authority.

Professional Mortgages
95% finance for fully qualified professionals
A professional mortgage package is designed to help professionals get a foot on the property ladder.

Applicants must be at least 23 years of age, earning a minimum of €30,000-32,000 and be qualified and practising one of the following professions:

Accountants, Actuaries, Dentists, Doctors, Lawyers, Opticians, Pharmacists, Physiotherapists, Veterinarians

You need to have been in continuous employment for a minimum period of 6 months and should not be on probationary contract.

Mortgage Legal aspects
There are essentially two types of legal mortgage.

Mortgage by demise
In a mortgage by demise, the creditor becomes the owner of the mortgaged property until the loan is repaid in full (known as “redemption”). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.

This is an older form of legal mortgage and is less common than a mortgage by legal charge. In the UK, this type of mortgage is no longer available, by virtue of the Land Registration Act 2002.
Mortgage by legal charge

In a mortgage by legal charge or technically “a charge by deed expressed to be by way of legal mortgage”, the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.

To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor’s property which might have higher priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lienholder from foreclosing and wiping out the mortgage.

This type of mortgage is common in the United States and, since the Law of Property Act 1925, it has been the usual form of mortgage in England and Wales (it is now the only form — see above).

In Scotland, the mortgage by legal charge is also known as standard security.

In Pakistan, the mortgage by legal charge is most common way used by banks to secure the financing. It is also known as registered mortgage. After registration of legal charge, the bank’s lien is recorded in the land register stating that the property is under mortgage and cannot be sold without obtaining an NOC (No Objection Certificate) from the bank.

Equitable mortgage

In an equitable mortgage the lender is secured by taking possession of all the original title documents of the property and by borrower’s signing a Memorandum of Deposit of Title Deed (MODTD). This document is an undertaking by the borrower that he/she has deposited the title documents with the bank with his own wish and will, in order to secure the financing obtained from the bank.

Borrower
Mortgagor is the legal term for the borrower, who owes the obligation secured by the mortgage, and may be multiple parties. Generally, the debtor must meet the conditions of the underlying loan or other obligation and the conditions of the mortgage. Otherwise, the debtor usually runs the risk of foreclosure of the mortgage by the creditor to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan.

Most buyers of real property would have difficulty saving enough money to make an outright purchase of real estate. The use of debt increases a buyer’s ability to buy through a combination of down payment and debt. As a result a real estate transaction seldom occurs without borrowers relying on borrowed funds.

Mortgage lender

Mortgagee is the legal term for the mortgage lender. The main function of the mortgage is to provide security to the lender. Given the large sum of money involved in financing a property, a mortgage lender will usually want security for the loan that will provide a claim upon that security and will take precedence over other creditors. A mortgage accomplishes this security.

The lender loans the money and registers the mortgage against the title to the property. The borrower gives the lender the mortgage as security for the loan, receives the funds, makes the required payments and maintains possession of the property. The borrower has the right to have the mortgage discharged from the title once the debt is paid. If the mortgagor fails to repay the loan according to the conditions set forth by the lender, then the mortgagee reserves the right to foreclose on the property.

A mortgage is the pledging of a property to a lender as a security for a mortgage loan.

While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

The term comes from the Old French “dead pledge“, apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.

The measurement of a mortgage with regards to cost to the borrower can be measured by Annual Percentage Rate (APR) or many other formulas for true cost such as Lender Police Effective Annual Rate (LPEAR).

In many countries it is normal for home purchases to be funded by a mortgage.