The following is for information purposes only: we do not give advice on mortgage applications.
If you’re a first-time home buyer without the means to raise a deposit, is the property market closed to you? Are all of your friends getting help from their parents but that simply isn’t an option for you? Having trouble understanding all of the legal ins and outs of mortgages, loans and government schemes? In a world where property prices keep on rising in an ever competitive market, it might be hard to ever imagine owning your own home.
Don’t despair, despite an unstable economic climate and the challenges of getting on that first rung of the property ladder, we might just have some ideas for you.
Can I get a 100% mortgage for a house in Ireland?
Currently, there are no 100% mortgage loans available in Ireland. This section will explain why this is the case, how much you can actually borrow and what factors to consider when thinking about how much to borrow. But first, let’s look at some of the words and acronyms we’ll be using when discussing mortgages.
Mortgage Jargon Buster
Mortgage – A mortgage, or mortgage loan, is used by purchasers to raise funds to buy property. The mortgage is provided by a lender – most often a bank.
Term of the Mortgage – The period of time the mortgage loan is payable for.
PDH, or Principal dwelling home. A home that you will live in yourself or with your family.
LTI, or Loan to Income. This is a ratio that money lenders will use to decide how much to let you borrow
LTV, or Loan-to-value, is a measurement used to determine how much mortgage you have in relation to how much your property is worth. This is normally a percentage figure that reflects the percentage of your property that is mortgaged, and the amount that is yours.
Equity – Home equity is the portion of the property that you truly “own.” If you borrowed money from a mortgage lender to buy the property, the lender owns part of the property until you pay off the loan.
What percentage of the property value can you borrow?
The Central Bank of Ireland recently introduced a set of rules or parameters that help mortgage lenders know how much to let you borrow. These rules also apply limits to mortgage lending by regulated financial services providers (lenders) in the Irish market.
These limits apply to both loan to value and loan to income measurements for principal dwelling homes (PDH). The limits are in addition to individual lenders’ credit policies.
Loan to Income (LTI) restrictions
A limit of 3.5 times gross annual income applies to all applications for a PDH. This means that all people applying for a mortgage to buy their own home can only borrow up to a maximum of 3.5 times their annual gross income.
Loan to value (LTV) restrictions
The limit on the LTV ratio for all first-time buyers is 90%. Previously, the rules allowed first-time buyers to borrow 90% up to €220,000 and 80% of the balance above €220,000. This is no longer the case. First-time buyers can now borrow up to 90% of the total value of a home, so will need a 10% minimum deposit
For more information, visit the Central Bank of Ireland’s website
How much can you afford to borrow?
When thinking about how much to borrow from a mortgage lender, consider factors that might affect your ability to pay back the loan. Job changes, having children and illness are all everyday examples of how personal finances can change over time. You may be tempted to try and borrow as much as you can but this might not be a wise decision in the long term.
It’s important to seek out advice on how much you can afford to borrow from a mortgage lender. Most financial services companies offer mortgage and loan advice but there are a few things you can do on your own before-hand. This will give you some knowledge on the subject before you speak to the experts.
Handy Tools:
Use this budget planner to work out what you can comfortably afford to repay each month. It may be helpful to include a regular estimate amount for ‘unforeseen expenses’ in your budget.
Use this mortgage calculator to work out the cost of your monthly repayments.
Your lender may offer you a smaller mortgage if you have other debts to pay. This might be personal loans, credit cards etc. They might even ask you to pay off pre-existing debt before they will approve you for a mortgage.
Depending on the length of term you decide to pay your mortgage loan off in, the repayments will differ. With a shorter-term mortgage, you will have higher monthly repayments. But because you are repaying the mortgage over a shorter time, you will pay less interest in total. With a longer term, you will have lower monthly repayments, but you will pay more interest over the term of the mortgage.
Use this mortgage calculator to compare monthly repayments for mortgages over different terms, and with different interest rates.
In conclusion, you can borrow up to 90% of the sum total of the cost of the property you’d like to buy. You’ll still need that 10% deposit though. Let’s look at a solution.
Help to Buy Schemes in Ireland
The Help to Buy (HTB) scheme is specifically for first-time property buyers. It was introduced in January 2016. The HTB incentive helps first-time buyers to raise the deposit needed to buy or build a new house or apartment in Ireland.
An important fact to note is that the HTB scheme only applies to new builds and not previously owned houses or apartments. It also only applies to residential properties – a house that you live in. The first-time buyer must occupy the home for a period of five years from the date the property is habitable.
How does the HTB scheme work?
Essentially, when you buy or build your home, the HTB scheme will give you a refund on the Income Tax and Deposit Interest Retention Tax (DIRT). The scheme allows purchasers to claim back a rebate on income tax or Deposit Interest Retention Tax (Dirt) on bank savings paid over the four years prior to the year they are buying or building their first home. If they have worked in Ireland for fewer than four years, or have paid only limited income tax, the amount available in any rebate will be lower.
This rebate of up to €20,000 is available to first-time buyers to help them purchase a new home in Ireland. It is worked out in the following way:
The amount that you can claim is the lesser of:
€20,000
5% of the purchase price of a new home. For self-builds, this is 5% of the completion value of the property
The amount of Income Tax and Deposit Interest Retention Tax (DIRT) you have paid in the four years before your purchase or self-build.
Crucially, scheme participants must take out a mortgage of at least 70% of the purchase price with a qualifying lender (or, for a self-build, 70% of the valuation approved by the mortgage provider). The loan should be entered into solely by the first-time buyer and the lender. A guarantor on the loan is allowed.
The maximum rebate is 5 per cent of the value of the property, up to a maximum of €20,000 and is available only on properties valued at €500,000 or less. Applicants must be borrowing at least 70 per cent of the value of the property. First-time buyers can borrow up to 90 per cent of the value of the property, so the rebate means most first-time buyers will need a deposit of just 5 per cent to purchase a home property.
How will the refund be paid?
The rebate will be paid depending on your personal circumstances, what you are planning to buy or build and when this is happening or has happened. For further details on how you will receive the rebate and how to apply visit the Irish Tax and Customs website.
Conveyancing solicitors and the Help to Buy Scheme
A conveyancing solicitor’s role is essential in the claim process. They can help you through the claiming process. If you’ve decided to self-build a new house, your solicitor is required to verify the claim. Before a solicitor can verify a claim, he or she must first apply to Revenue to be a registered solicitor for the Scheme. The Solicitor, based on the information provided as part of the normal conveyancing process, needs to verify the following aspects of the claim:
The names of the first-time buyer(s)
The address of the property
The valuation/price (this is the approved valuation by the lender in accordance with the Central Bank Prudential rules)
If the information entered by the first-time buyer in the claim stage matches with the information verified by the registered solicitor, Revenue will approve the claim.
To find out how Gibson & Associates solicitors can help you with your HTB claim read about our conveyancing service.
Can I part-own a house in Ireland?
You may be wondering if you can part-own a house in Ireland. The answer, unfortunately, is no. The Shared Ownership Scheme ceased in 2016 and is not available for new applicants. The scheme was designed for people that could not afford to pay the total sum of the property all in one go. It was replaced by the Help to Buy Scheme.
The rules of the Shared Ownership Scheme continue to apply for people who used it to start buying a home. Find out more here.
Average deposit rates across Ireland
Now that we have established how you can finance buying property, let’s look at the average deposits across Ireland. It’s worth pointing out that average deposit costs vary widely depending on where the property is located. According to the Irish Central Bank rules implemented in 2016, first-time buyers must now provide a deposit worth 10% of the property’s asking price. This is compared to 20% for the rest of the market on anything more expensive than €220,000.
Here’s an idea of the average deposit amounts across the country (all numbers are taken from Daft.ie ’s 2017 3rd quarter report (available here.)
Donegal €14,249
Cork City €52,036
Limerick €16,986
Dublin (North County) €60695
Galway €54,359
Killkenny €20,732
Let’s recap…
If you lack a significant deposit or don’t have the option to borrow from family, you can buy a house with the combined help of a high mortgage loan and the HTB scheme offered by the Central Bank of Ireland
In Ireland, there are currently no shared ownership schemes for property
Seek advice on the best way for you to borrow money from a mortgage lender.
Do the research on how much it will cost you to live in your area of choice. Be prepared before you have a meeting with a financial services company. Use the helpful online tools to figure out how much you can afford to borrow at what rate.
Use an experienced conveyancing solicitor when seeking legal advice on purchasing a home.
Gibson & associates is an Irish law firm with a difference. We always put you first and work tirelessly to get the best result for you.
Our experienced and empathetic solicitors tailor their service to your unique needs and keep you fully informed along the way. It’s not just about the results though; we want your experience with us from start to finish to exceed your expectations of a what a law firm is.
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Don’t despair, despite an unstable economic climate and the challenges of getting on that first rung of the property ladder, we might just have some ideas for you.