Sometimes I ask the folks in the office about the questions they are asked by clients they are dealing with at the time, often it will result in comments like ‘the usual’… ‘How much can I borrow? What’s the best rate etc.’ and while that is true, another question often asked is one that is implied but not directly a question.
‘What do banks want from me when I am making a mortgage application?’
The answer, in the sense of principles, is that that they are looking for a way of determining your ability to repay a debt, some mathematics is used, some gut instinct often plays a part too, qualitative is mixed with quantitative.
Banks use different general mortgage calculators and these use your financial information to give different brackets of lending outcomes. In looking at your p60 they try to establish a year on year figure for your earnings, if you got a raise in the interim (if you did recently you are a rarity!) then that might not be accurate -but it should be reflective of where you were- so they will look at recent pay slips and average them out over the year, this should match, in most circumstances, with your P60 and Salary Cert. That takes care of the income verification side of things in terms of paperwork.
If your loan starts to go ahead, further down the line the mortgage company will likely contact your place of work and ask to verify with your HR department various details of your employment, if you are self employed then they will usually speak to your accountant. On the self employed, instead of salary certs, a mortgage lender will generally want an accountants letter and sets of accounts, a mortgage provider may also ask for a p21 or ‘revenue balancing statement’ as verification of income.
How your spending habits behave is another important point, do you save money? Are you overdrawn at any time? Do you have referral fees or any other account inconsistencies? Do you use online betting alot? These are all things which don’t appear in a banks standard mortgage vetting criteria but which are interpreted by an underwriter as a means of deciding whether or not you are a good risk for the type of debt you are trying to undertake.
Credit in Ireland is increasingly difficult to come across, the contraction will bring us (eventually) to the ‘new normal’ in which we believe credit will be similar to the way it was in history up to the mid 90’s, in which it was not easily obtained and when used came at a premium. Due to this it is important to remember that your bank account is kind of like a ‘credit CV’ when matched with your ICB (Irish Credit Bureau report), your current account is similar to your current role and your ICB is like your past experience, between them they give a very telling picture of how a person might handle mortgage repayments and the responsibility that comes with it.
So, in a nutshell, banks want to see that you run your finances in a responsible way, that you are not always overdrawn, that you don’t have referral fees, that you do have savings, and spend your money responsibly. If you match that with an income which accomodates the level of borrowing you seek then you have a better chance of successfully applying for a mortgage.