Ever since its introduction to the Irish market back in July 2005, the 100% mortgage has had to endure much criticism and has been under constant scrutiny. Prior to July 2005, lending institutions required that mortgage applicants have at least 8% of the purchase price of the property, as 92% was the maximum amount they were willing to lend. This was done so that in the eventuality of depreciation, the loan would not be likely to exceed the equity held by the borrower.
This resulted in many people using unsecured lending (credit cards, personal loans etc.) in order to raise the deposit amount on properties. As a result of this, lending institutions felt obliged to review their stances and subsequently brought the 100% mortgage to the market. Many commentators were sure that this mortgage package would single-handedly destabilise the property market. Its real impact was not as great as was expected however, as the terms and conditions laid out by lenders are usually quite strict and the mortgage is only available to FTBs.
The 100% mortgage had been available to professionals for years. Traditionally you had to be working as a qualified doctor, dentist, lawyer, teacher, accountant, vet, pharmacist, optician or physiotherapist in order to qualify. This was presumably due to the large potential earnings of individuals in these professions. This changed in 2005, when it became available to non-professionals and people outside of these positions.
In order to see whether a 100% mortgage is for you, it is always advisable to speak with your broker or financial adviser first. There are currently six lenders on the market that offer 100% mortgages, and your broker will be able to advise you as to each lender’s criteria. Generally speaking the criteria is as follows:
At least one of the applicants must be a first time buyer (FTB)
- You must be buying the property to live in, as the 100% mortgage is not available for investment properties
- The property must have at least 2 bedrooms. You will not qualify for a 100% mortgage if you are purchasing a 1 bed / studio apartment, or land on which to build
- Lenders will usually require that you have at least 3 years’ employment history, although this need not all have been with the one employer
- Applicants must display earnings of approx. €45k per annum for single applicants and min. income for double applicants is approx. €80k p.a.
Graduates can apply to be assessed on a case by case basis, as potential earnings are taken into account and it must be noted that guarantors are not taken into consideration. Term lengths vary between lenders with the most common term being 35 years.
There are a number of things to be aware of when applying for a 100% mortgage. Since the introduction of this mortgage, we have experienced eight interest rate increases in the Eurozone. This has meant that the base rate has gone from 2% – 4% in the past eighteen months, with retail rates a little higher. It is highly likely that we will see the ECB raising the interest rates again next month. A further hike is expected in the following six months.
Although lending institutions will ‘stress test’ your application in order to assess your repayment capacity in the eventuality of an increase in interest rates, it is advisable to be practical and make a realistic assessment of your own situation, taking spending and saving patterns into consideration.