My partner and I are first-time buyers, or at least we’re hoping to be soon. I know the rules changed for FTBs a few years back in terms of what they can borrow, but since then I think there have been more changes and also some assistance schemes put in place. I find it all a bit baffling to be honest. Could you tell me in relatively simple terms what would be open to us? I’m a teacher earning €40,000 a year, my partner is a social worker earner around the same. We are both in full-time employment. Would we qualify for any schemes or exemptions? Ailis, Waterford city
To give you a full assessment of your options we would need more information on your individual situation, but as a general guide the following could apply to you. The current Central Bank lending rules means that FTBs must have a 10pc deposit towards the price of the property.
“In addition, under Central Bank rules, you are normally only allowed to borrow 3.5pc of your combined income. However, if you qualify for an exemption to the Central Bank rules, you may be able to borrow more than three-and-a-half times your income. Under those exemptions, the maximum loan available to two applicants earning €40,000 each would be around €400,000 – if the applicants are aged 35 or less. All exemptions are considered on a case by case basis and will depend on the bank’s scope for exceptions at that time.”
In terms of the ‘schemes’ you mention there are a couple in existence that you could investigate.
The first is the Help to Buy grant. Under this scheme eligible FTBs can claim a tax rebate equal to 5pc of the value home they are buying. This is restricted to new homes valued at €500,000 or less, and the rebate cannot exceed €20,000.
The second is the home loan scheme which is available to some FTBs earning no more than €75,000 per year.
It allows those who qualify to access cheaper lending rates and to circumvent the loan-to-income rules I mentioned above. Crucially, you must be able to prove that you were either turned down for a mortgage previously or were offered insufficient funds.
The maximum amount people can borrow depends on where the property in question is situated – for Waterford it would be €250,000.
Finally, there one other avenue that might be open to you is the affordable homes scheme. Houses built on State land will be available to purchase at a significant discount through the home loan scheme.
However, the State will retain a share in the property. Construction has not started on these properties yet however, so the timeline might not suit you.
Above is just a very brief overview and as you can say there’s quite a lot to consider. I would recommend you get expert advice first – buying your first home is a huge financial undertaking so good research is a must.
Am I stuck on fixed rate?
I’m currently 3.5 years into my 5-year fixed rate with Bank of Ireland. I’m paying 3.8pc in interest on my mortgage with an outstanding balance of €350,000 with a term of 30 years remaining and loan to value of under 80pc. Looking at the rates banks are offering these days, mine looks pretty expensive. I presume, however, that because I signed a contract to pay the rate for five years I’m stuck – or at the very least the bank would charge me a fortune if I tried to get out of it? Jane, Blanchardstown, Co Dublin
In a word, no. You are not stuck and, no, it won’t cost you a fortune. So that’s good news for you, because it means you have options, and you have a good chance of being able to lower your monthly mortgage repayments by paying less interest. In many cases, the breakage fee is zero due to the low cost of funds for banks at the moment.
Quite understandably, lots of mortgage holders believe that because they signed a fixed rate contract with their lender, it means that they have to wait it out before they can seek a new lower rate with either the same, or different lender. But there are ways around this.
What you first need to do is ring your current lender and find out how long is left in your current rate term and what the breakage fee would be – if there is one. You should then ask them what are the best interest rates available to you given your loan amount and the current value.
The next step is to contact a mortgage broker to see what interest rates are available from competitors. For this, you will need to know the overall mortgage term remaining, ie the outstanding balance on your mortgage account. You should also ask these lenders what incentives they would offer you to switch.
The incentive offered by all lenders should more than cover the legal costs as well as any possible breakage fee.
You will also have to make some calculations on the variable interest rates that have been offered to you by all lenders to see what kind of savings you can make.
Looking at your case, and without knowing more details, you could potentially cut your interest rate by 1.2pc to 2.6pc saving yourself €229 monthly or €83,000 over the life of the mortgage. That’s a significant sum by anyone’s standards!
Double mortgage protection
My partner and I bought a house together five years ago and took out our mortgage protection policy on a joint basis. As far as I know, this means if one of us was to pass away then the policy would pay off the mortgage and that would be it. A colleague of mine, however, said there’s a way we could get a policy that would pay out twice ie if it happened that both of us were to pass away, our dependants would get a pay-out too? Since we got our mortgage we have added two smallies to our family so I want to ensure I’ve put financial protections in place for them. Ian, Baldoyle, Dublin 13
Yes this is called dual cover. It’s something that’s relatively new to the market so, depending on your insurer, it would not have been available to you when you took out your cover originally. However, it is something which you should certainly consider and I commend your proactivity in this regard.
As you have outlined, you have joint life mortgage protection, but dual-life cover is also available. The latter will pay out on two separate occasions if both policy holders were to pass away during the policy term. What it means essentially is that the mortgage will be paid in the first instance, with a lump sum paid to dependants in the second.
Not all insurers currently provide this option, so you’ll need to seek out those that do and compare their offerings. But in terms of price, the difference is minimal so it’s worth your while considering the change.
The two lives are covered independently and a claim for one of the lives has no impact on the levels of cover relating to the other life.
An example of it in practice would be if a couple took out a mortgage protection policy for €250,000 with a 30-year term. Had they opted for joint cover and if both were to pass away and there was €225,000 outstanding on their mortgage, then the insurer would settle the mortgage bill and the policy would end. However, if they had opted for a dual policy then the mortgage bill would be settled, but an additional €225,000 would be paid out to their estate.
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