Although the planned introduction of a shared action plan later in the year will change the situation in favor of the first-time buyer, the current situation remains the same as for several years: you can borrow up to 3.5 times your gross salary.
This Loan-to-Value (LTV) ratio is set by the Central Bank. This means that under normal circumstances a mortgage lender in Ireland may offer their client an amount not exceeding three and a half times their pre-tax salary.
Therefore, if someone earns € 50,000 per year before tax, they can get a home loan of up to € 175,000.
There are exceptions to the LTV rules in Ireland. For “higher income brackets” (more than 50 K € / year for an individual or more than 70 K € / year for a couple), the ratio of 3.5 can be exceeded for example.
In addition, each lender has the power to exceed the ratio of 3.5 in no more than 20% of applications in a calendar year, which leaves some leeway for home loan applicants. People with high savings and / or who hold jobs in stable sectors may find themselves in such a privileged position, for example.
A deposit of at least 10% of the purchase price will be requested, whether you are a first-time buyer or not. The higher the deposit amount you have, the better the rate you can get. If, for example, you buy a house for 300,000 €, you will need a deposit of at least 30,000 €.
Keep in mind that a first-time buyer of a new home is entitled to a tax reduction of up to 10% of the purchase price of the house (up to a maximum of € 30,000) – a good amount of money in his pocket.
Compared to six or seven years ago, the lending policies of banks and mortgage companies have relaxed. There was a time, for example, when a person applying for a mortgage had to demonstrate solid savings and could not include any amount of money offered or loaned by their parents, but this kind of constraint for first-time buyers has to do with it. much of it disappeared in recent times. years.
The table below gives an example of what the monthly repayments would be from different lenders on an amount borrowed of 270,000 € over a period of 30 years – based on current market rates. In these cases the rates are for customers with the normal criteria (10% deposit and new customers) but some banks will again offer better rates if your deposit is larger or if you open a checking account with them.
There are two main categories of rates: (a) fixed; (b) variables.
In a more traditional or “normal” market, the variable would generally be the weakest, but we live in an era of historically low interest rates and this era shows no signs of ending. For the foreseeable future, therefore, fixed rates offer better value.
Having a fixed rate means that you know exactly how much you are repaying each month for the duration of the fixed rate period. Choosing which one to choose depends on your personality, in many ways. For example, if you choose a five-year fixed rate, you might pay a little more than if you had chosen a three-year rate, but you have the security of knowing your repayments won’t change for five years. It’s about evaluating your socio-economic life, finding the right balance for you. My advice? Go for the lowest!
For the vast majority of cases, there is only one type – the annuity mortgage. This is the normal, common or garden type of mortgage loan where the bank or other lending institution advances you a sum of money, allowing you to buy your home. You agree to make a series of monthly payments over a specified mortgage “term”.
It is generally over 20 or 30 years. In each monthly payment, a portion will go to repay the principal (the original amount advanced to you) and the rest will go to interest. In the first few years of the repayment term, the majority of what you pay each month is interest, but over time an increasing proportion of the repayments goes to pay off the principal.
Other types of mortgages include:
- A pension mortgage: this is an annuity plan where a pension plan is set up to run in parallel with the repayments of capital. The final pension amount should pay interest and hopefully have some extra pension money.
- An endowment mortgage: This is similar to the retirement mortgage, with an endowment fund that runs alongside principal repayments, after which the endowment fund has to pay interest with some remaining money.
- A checking account mortgage: This is also known as a compensatory mortgage and works the same way as the endowment mortgage.
When buying a home, there are a number of other important costs that you should also plan for, including the following:
- Life Insurance: Insurance rates are subject to massive fluctuations, so this necessary cost is worth researching. You should plan for something like $ 250 / year. When deciding on the level of coverage, the key is to cover the remaining mortgage amount. Afterwards, it’s a matter of choice. You can, for example, opt for full life coverage, which means that the policy would pay the full purchase price at any point in the term. There are other options after that, which you may or may not decide are worth paying for. These would include mortgage protection, critical illness coverage and income protection.
- Home insurance: This is another legal requirement and a cost that can vary wildly. It is important to shop around for the best rate. The location of your home and its market value will be the main cost indicators, but you should be paying between $ 40- $ 60 per month.
- Notary Fees: Many people hire a notary for the first time when they buy their first home. Trust is the most important factor – hiring someone you can trust and communicate with should be the first priority before talking about money. But expect to pay something in the region of € 2,000.
- Stamp Duty: Previously this was a huge tax bill, but now it’s reduced to the much more manageable rate of 1% of the price of real estate, plus 2% of any part of the price over $ 1million. euros.
- Surveyor’s Fee: $ 300 should be around the level you’ll have to shell out for this. This is not a full legal obligation, but it is common practice in Ireland and your lawyer will advise you. It gives you an important structural assessment of the property you are buying before you finalize your purchase.
- Appraisal Fee: Another bill that many first-time buyers overlook when assessing their purchase costs. It should be around € 180 so it’s not one of the biggest costs but it’s important not to overlook it. All lenders require an independent property appraisal before handing over the loan check.