The average mortgage taken out in Ireland is approximately €260,000. Before mortgage providers lend-out such large amounts of money they need to be as sure as possible that the funds will be repaid in full and on time over an agreed period. While a home loan is secured on the property as collateral, this should not reduce the lenders’ lending prudence because repossessing a home in the case of non-repayment of a loan is an absolute last resort which takes a lot of time, costs a whole lot of money and risks generating such grossly negative publicity that it is barely worth it and is entirely unattractive. So, to ensure this possible outcome is seldom reached; lenders vet their potential clients carefully using the following key documents on which to base their underwriting decision…
Irish Law demands that a financial institution must establish the identity of a client before entering into any financial transaction. Of course, its logical that before a lender can even begin to consider your suitability as a potential borrower it must confirm that you are who you say you are. Anti-money laundering Legislation stipulates that a current, valid passport or driver’s Licence is acceptable.
As part of establishing a client’s identity, above, a lender must seek evidence of permanent residence. A recent (dated within 3 months) household utility bill (ESB, Bord Gais, fixed-line telephone bill) , a Revenue tax credit certificate or recent original current account statement issued on bank headed paper with client’s full address listed is acceptable for this purpose as these are considered the most reliable confirmation that the client actually ‘resides’ at the premises.
Because borrowing options are calculated primarily on ability to repay, income verification is paramount. The following documentary evidence of income, together with loan statements (below), are used to calculate a client’s net disposable income; that is the amount of income available after tax, loan repayments and other financial commitments are paid and to estimate, therefore, any additional repayment capacity.
A salary certificate is essentially a letter from your employer confirming the terms of your employment, but provided on a form provided by the intermediary / lender to ensure that it contains all the required details in an easy to complete format. These details include guaranteed basic salary, any additional pay, job description, employment status (permanent, temporary, contract or probationary), length of employment, any applicable salary scale and, most importantly, a comment (or tick box) relating to whether or not it is envisaged that the employee will continue to remain in this employment into the foreseeable future.
Payslips (3) are required essentially to back-up the salary cert as they provide documentary evidence of the actual pay received incrementally over the previous weeks or months, broken down into basic salary, overtime, bonus and non-taxable expenses. Moreover, they show the total accumulated pay during the year, which when averaged out over the full year often give the most realistic guide to the likely true annual income for a PAYE employee. Payslips may be verified with a current account statement as this should show the net pay being lodged into the employees account on the payment date shown on the payslip.
The P60 is the end of year receipt of both gross and net income paid to an employee including the tax paid to the exchequer, furnished by the employer. This historic evidence is used to help create a comprehensive picture of a client’s income stream. From time to time, a client may be requested to source a P21 for the Revenue Commissioners in order to confirm that the details on the P60 to indeed conform exactly to the details provided to the tax-man, which they should. Underwriters look to ensure that details from the payslips, salary cert, P60 and bank accounts all match up.
Current Account Statements
A recent 3 to 6-month, up to date current account statement is required and, as mentioned above, is often used to verify declared income and one’s residential address. It often provides a lender with a broad overview of a client; is the account generally ‘in the black’ or is an overdraft in constant use? Moreover, is a client regularly pushing the limit of or exceeding the overdraft limit? Are direct debit payments being met where required? Are cheques clearing or bouncing? Are there any undeclared financial commitments being paid from the account? Are there any undeclared income streams such as maintenance or social welfare payments? A current account can give a clear insight into the general financial well-being of a potential borrower, they are perhaps the the most telling part of an individuals personal finances.
Mortgage and Loan Statements
If you already have a mortgage a 6 to 12-month statement on all existing mortgages and loans is an important requirement. A current account may show a payment being made to a loan company, for example, but it does not show the borrowers’ repayment history or if the account is, indeed, fully up to date. Any late payments shown on a mortgage or loan statement make it difficult to convince a lender that a client is a good candidate for new loan facilities. Arrears make prime loans almost unattainable.
Because a track-record of savings is viewed very positively by lenders while accessing their client’s borrowing / repayment potential it is important to furnish evidence by means statements. Lenders are not only interested in the accumulated balance of savings but also of the size and regularity of savings contributions. These statements can also be used to account for any balance of funds to be used to purchase a property that come from a client’s own funds.
Mortgage Application Form
A mortgage application form sums up the details contained in the aforementioned documents in the client’s own hand and confirms the desire of the applicant to borrow new funds. It includes extra information about the client’s credit and employment histories, contact details of relevant parties (solicitors, architects, estate agents etc) and also confirms important authority for an intermediary and / or lender to retain personal and financial data, contact employers and to request a copy of one’s recorded ‘credit history’ from the Irish Credit Bureau.
Original Documents or Copies?
Mortgage and Insurance Intermediaries are vested with the authority to ‘certify’ copies of your original documents. This enables intermediaries to view, retain and copy your documents so that the actual originals can be retained by the consumer for security and efficiency purposes, while certified copies are forwarded to banks, building societies, assurers and other relevant, trusted parties.
Additional Ad-hoc Requirements
There are many additional documents that could be requested depending on the nature of the application and the quality of the standard documents. These include a Revenue Balancing Statement (income verification), a ‘declaration of no interest’ of a person contributing to the purchase price of a property, evidence of previous employment dating back several years, proof of visa or other residency status for non-national applicants, marriage or divorce certificate and many other possibilities.
Basically, it is legitimate for a lender to request almost anything that it deems necessary to come to a sound value & judgement about your suitability as a mortgagor. Your ability and likelihood to repay the funds in full and on time, as required. To minimise the difficulty in understanding what is required, in gathering the necessities and in presenting your case to ensure the very best possible outcome, it is essential to engage your independent advisor / intermediary to act on your behalf.
This article was brought to you by Mark Dunne of Irish Mortgage Brokers.
Mark has been in financial services and specifically mortgages for over half a decade and he lives in Drogheda, he helps people all over the island and when not taking care of his clients he likes to do some surfing. You can contact Mark on 086 811 6633 or email him mark (dot) dunne (at) mortgagebrokers (dot) ie [we write it like that to avoid spammers!]