Are banks still lending?

A survey from a few months ago showed that 80% of mortgage applications were being rejected. There are effectively only three lenders who are really lending here. They are AIB, Bank of Ireland/ICS and EBS. The remainder of the lenders have either priced themselves out of the market like Halifax and Bank of Scotland. Or there criteria is so tight that they will only lend to loan to values so low that it rules out most people looking for a mortgage or their loan criteria is so onerouslits nearly impossible to get an approval from, them

However Finance is still possible to get, it is however difficult and time consuming as some of the banks have huge delays inn assessing mortgage applications. So be prepared to wait. The market has shrunk dramatically for example in 2006 there was €40 billion lent in new mortgages. This year it will be less than €10 billion. Mortgage lending in Ireland is now at a historic low. For the first time since 1990 the amount of repayments on mortgages has exceeded new mortgage loans! That is exactly what the bansk want and is no coincidence.

Arraigning a mortgage has become so time-consuming that my company, First Credit are no longer really in the market for mortgage customers. For us it has become so time consuming to process a mortgage that we cannot make money out of. In the New Year we may start charging a nominal fee to package a loan and then advise our customers to go direct to all of the banks with their paperwork as with the current system of commission it just does not make sense because of the time involved. The business we are doing in First Credit at the moment is primarily advising our existing customers.  

Hopefully that will change soon as the role of the broker is probably needed more in this climate than ever before. For negotiating and more than that Mortgage Brokers keep the banks honest. Your average customer is better having someone independent advising them on the best rate, bank and product as opposed to going to a bank and letting them sell you whatever rate and product the bank official has been told to advise.

Most of the country would not be on low margin tracker rates if it was not for the broker market. Most people would be on more expensive variable rates subject to the whims of the lender. Tracker rates were brought in to this country exclusively by the broker market and Bank of Scotland many years ago and changed the amounts we were all being charged on our mortgages.

Our banks are in critical condition, they need profit to shore up their balance sheets and that is their only concern. They nearly all have started the PR machines to portray them in a better light but their only concern is survival and getting back to full fitness. There is this misconception that post NAMA there will be greater availability of credit. I cannot for the life of me see how it will change anything. If anything I can see more increases on variable rates. The banks need to make a profit to improve their position and where can you get that? From your customers. And the fact that the banks were bailed out by the government, will it make a difference?  If anything was learned from the appointment of AIB’s new Managing Director from within and ignoring the government salary cap, shows that regardless of government objections they will do whatever suits them. So be prepared for higher charges! 

Mortgage Tools

If you click on the following link it brings you to a mortgage calculator  which will help you determine the amount you can borrow and the cost per month for that mortgage.

It is also a good idea to read a First Time Buyers Guide. Here is a First Time Buyers Guide which is free to download.

Repayment Mortgage (annuity) V Interest Only

It is only in very exceptional circumstances that an interest only mortgage is a good idea. For First Time Buyers I rarely recommend them.

Most people move house three times in their life. For the most part this is achieved using the equity built up in their house. Equity is built up in two ways. In the case of annuity mortgages, the value of the property increases and the mortgage holder reduces the capital by making monthly repayments on the total value of the property. With interest only mortgages, the amount you owe the bank is not reducing so you are wholly dependent on property price increases.

Most people who start with Interest only mortgages intending to move to repayment may find it difficult to adjust their lifestyle to the higher repayments required by the annuity mortgage option and avoid making the change. As a result the balance on their mortgage does not reduce. For people who have a staggered income, it is in principle a good idea to have interest only and to pay lump sums off it. However this approach is only realistic for the very disciplined as there is always something new to be bought with a lump sum like cobble locking or a new sofa etc. If you can maintain your focus and discipline, then this type of mortgage might be a worthwhile option for you. I would certainly not fall into this category!