100% Mortgages became quite popular in Ireland recently and up until the credit crunch they were proving to be the answer for many young buyers, the reason for requiring a 100% mortgage is normally because a person has been renting and paying off college debt etc. and for that reason they were not able to save up a deposit of 8-10% or more. Given that Irish property prices (at least in Dublin) were – and still are – above c. €350,000 it means you would have to save up the guts of €35,000, no easy feat even if you didn’t have college debt and lived at home.
The issue currently though is that the Irish property market is in a declining phase, so lenders have pulled back for the most part from 100% mortgages for the simple reason that they could be in a situation of inverse equity. When you get a mortgage normally you have at least some stake in the transaction, a down-payment or deposit and that portion ensures that you are committed to the transaction, call it ‘earnest money’ if you like.
If you get a 100% mortgage and the property goes from being worth €400,000 to €380,000 (as happened over the last 15 months) and you decide to walk away then there is no actual monetary loss to the borrower, the loss is 100% levied on the bank, and naturally enough banks are not keen on exposing themselves to this kind of risk. Normally, if you have equity in your home and don’t pay your mortgage then there is at least some kind of margin of error there for a lender, so if you had a house worth €400,000 and owed €100,000 and decided never to make another mortgage payment then eventually the bank would repossess the property and sell it and take their money plus additional interest and expenses from the proceeds.
That can’t happen with a 100% mortgage and for that reason they are quickly disappearing, the reason they came out in the first place was that the Irish property market was in a long upswing, so the market created equity rather than the client. What does that mean? Well, again, you buy a house for €400,000 and in a year its worth (because prices went mental for a long time) €450,000, now – even if you were only paying the interest and not the capital – you would have €50,000 in equity. That situation laid the foundations for 100% mortgages, however, now because the property market is not in the midst of a bullish trend, and in fact is in a bear market, movement in prices can place the lender in negative equity and the lender will in turn have a highly exposed mortgage book.
100% mortgages have a good few terms and conditions, they are diverse and each lender has their own criteria, so next we will look at some of the things that lenders generally take into account. With every bank a one hundred percent mortgage is available only on a first property, basically you will have to be a first time buyer.
What jobs qualify for 100% mortgages? For starters ‘professionals’ can get a 100% mortgage for the most part. ‘Professionals’ as far as the bank are concerned are not merely people who are good at their job (for instance, I myself don’t qualify on this basis as far as the banks are concerned) they are people who work in specific jobs and industries. Nearly all banks and building societies will do 100% mortgages for Doctors, Solicitors, Dentists, Accountants (ACCA, ACA, CPA but not CIMA) and Architects.
Other jobs on the list (but not exclusively) are as follows: Opticians, Actuaries, Pharmacists, Physiotherapists, Vets, Barristers, Chartered Surveyors, Pilots, Psychologists, University Lecturers, Engineers (CEng, MIEI, FIEI), and Public/Civil Servants.
Often there is an income requirement as well, this is usually based on the number of people making the application, for instance with First Active a single person seeking a one-hundred percent mortgage will need to be earning at least 40k, with other lenders this amount is 75k. For joint applications the combined income must be greater (at the lower end of what lenders will accept) than 50k.
A work history of at least 3yrs continuous employment is also required. When I first got into lending the three year rule was there for ANY loan, then it was relaxed a little because people in the last decade have started to move jobs at a much greater rate. The three year rule attached to these mortgage applications is based on ‘continuous’ employment, so if you changed jobs that’s o.k. but you can’t have periods in the last three years where you ‘went to Australia for 8 months to find yourself’ or anything, and on that count the lenders are mercenary, you will have to provide three years p60’s, or equivalent evidence. One lender requires that the three years experience is with one employer only.
The terms available are up to 40 years assuming that is possible, what that means normally is 40 years with a maximum to age 70, so if you are 28 then its o.k. because you would be 68 when the loan ends, if you were 35 it wouldn’t work (in general – some lenders do go beyond this) because you would be 75, however, with the average loan lasting about 5 years there is very little likelihood that you would keep one loan for 40 years in any case, or even 30 years, because at some point in the future you may want to refinance, switch providers or sell up entirely.
The most important thing to do if you are looking for a 100% Mortgage is to deal with a broker who has at least 10 or more agencies so that they can look around the entire market for you (or if you are very finance oriented and would rather do all the work you can of course do it yourself) and determine what products are out there that you qualify for, and assuming you qualify for more than one, which one is the best for your circumstances.
The one inherent problem with 100% mortgages is that often the people who need them most are the ones who cannot access them. This is one of the anomalies of lending but unfortunately it doesn’t look likely to change.