Mortgage Approval in Principle ...

Mortgage Approval in Principle from a mortgage broker or lender gives prospective buyers an idea of how much they would be approved for based on the information they provide about their finances.  This usually gives a reasonable indication of the type of mortgage you might be able to get but there is a lot more to an application process that can delay or lead to a declined proposal.

As such, I try to dig much deeper at application stage to make sure that there are less surprises and delays further on in the process. There have been instances where people have received approval in principle quickly with a financial institution, but have contacted me months into an application where they are still being asked to clarify information regarding their application. 

Documents required when applying for a mortgage

If your application is approved in principle, the following are examples of documents that you might also be asked to provide: 

If you are a PAYE employee, you will typically need to provide:

• Your most recent P60 (original)                                                                                                    
• A Certificate of Income (a standard form provided by the bank for completion by your employer)
• Your last three months payslips                                                                                                
• The last six months bank account statements

If you are self-employed:

• Your last two years’ certified/audited accounts
• The last six months business bank account statements (if business account is not with that bank)
• Your accountant’s or auditor’s written confirmation that your personal/business tax affairs (PAYE/ PRSI/VAT) are up to date
• Your management figures for the current trading year
• You may also be required to provide identification documents and confirmation of your address. This is usually a current valid passport or driving licence and recent utility bill. 

Additional costs in purchasing a property

• Valuation: Before you draw down your mortgage, the property will need to be independently valued by a professional valuer – you should expect to pay a fee of between €150 and €250 plus VAT, but this can vary.

• Legal fees: You will need to pay legal fees to your own solicitor. As part of your own arrangement you need to agree with him or her whether this is a flat fee or a percentage of the purchase price. 

• Stamp Duty: Stamp duty will also apply to the purchase. The current rates are 1 per cent of the purchase price up to €1,000,000 and 2 per cent of any value over that.

• Insurance/assurance: You will also need life cover and home (buildings) insurance – the costs of these can vary depending on your requirements and circumstances. Life and buildings cover will need to be in place before you draw down your mortgage.

Mortgage term
Mortgages of up to 35 years are available to first-time buyers. Terms of up to 30 years are available to those trading up or down. Irrespective of whether you’re a first-time buyer or a mover your mortgage term must not go past age 70.

Getting Mortgage-Ready!

Applying for a mortgage can be a detailed and time-consuming process. The bank is eager to see that you can afford to take on a mortgage repayment and still have enough money left each month to enjoy your new home. To help you prepare for this process we have compiled a checklist to ensure that your application is successful.
 

• Your income - lenders will look at your annual income and some may take bonuses or overtime into account. Some lenders may factor in rental income if you plan to rent out spare rooms.

• Outstanding loans/Credit record - if you have other loans, this may reduce the amount of money you can borrow. Keep credit cards and personal loans paid on time. Missed repayments could affect the amount you can borrow for your mortgage and also your credit history.

• Savings Having a regular savings account in which to save your deposit is important.  The bank will also take into account if you are paying monthly rental payments on a property – it demonstrates your ability to support this level of monthly repayments. You should arrange to pay your rent through your bank account – even if you are living at home and making a contribution to the household.

• Day-to-day finances Make sure you manage your accounts so that you don’t go over your credit limit – this shows that you have been able to manage your finances effectively for a period of time before you apply for your mortgage. Lenders will look at any financial commitments you have, such as childcare costs. 

• The value of your house - this is the market value, or purchase price of your house.

• The amount you need to borrow - this is the difference between the amount you have saved to put towards the house (your deposit), and the purchase price of the house.

• Additional costs You will need to show how you can cover additional costs such as stamp duty, legal fees, valuation fees and any additional expenses that might arise during your application process.

Deposit required

• First-time buyer
  If you are a first-time buyer, a 90% limit will apply with a 10% minimum deposit. If there are two parties applying for the mortgage, both must be first-time buyers for the mortgage to be considered for these advantages. A Help-to-Buy incentive is also available and it is designed to assist first-time buyers with obtaining the deposit required to purchase or self-build a new house or apartment to live in as their home. It provides for a refund of Income Tax and Deposit Interest Retention Tax (DIRT) paid over the previous four tax years to first-time buyers. See the Revenue website for further information.

• Non-first-time buyers

  If you are not a first-time buyer, different rules will apply. A lender may lend up to 80% of the value of the property that you wish to buy. This means you need to have the remaining 20% saved for your deposit. Banks do have a discretionary option to allow some applicants to apply outside of this criteria.

To be continued...

The future of financial advice in Ireland

So this is where we take out our crystal ball! Consumers sometimes are not clear about the value of financial advice, a situation that we are trying very hard to change. We know the value that is offered every day by Financial Brokers the length and breadth of the country, so here are a few thoughts on what you can expect to gain from seeking financial advice from a professional Financial Broker. The good news is that this future has now pretty much arrived! A good Financial Broker will deliver on these today.

Consumers don’t want conflicted advice
This is probably the key point. Consumers want advice and financial solutions that are based on their specific goals and objectives, and not those of the person giving the advice. The independence of the advice giver is critical here, they need to be able to seek out and provide the very best solution in the market for the client. The days of “force fitting” clients to the single product solution that is the only one available to a product seller are long gone. The solution must start and end with the client – their specific goals, their requirements and their specific circumstances.

Financial Brokers are not aligned to any one organisation and can advice upon the products of many organisations. Their advice starts and ends with the client, not the products available to them.

Consumers want clear and transparent charging
Similar to any other product or service bought by consumers, they rightly want to know what it is costing them. The providers of financial advice need to be able to clearly demonstrate the value that they are bringing through their advice, and what this advice costs. The adviser needs to be able to set out clearly how they will make a difference to the financial future of the client, and charge accordingly for this. Consumers can choose to pay for this through commission taken by the adviser from products, or by separate fees – however the adviser needs to be able to communicate clearly the value that will be gained from their advice.

Financial advice is about lifetime relationships
This might sound like a lofty statement, but it is so true! Financial advice is not a point in time transaction, it is a journey. It starts with the adviser identifying the desired financial outcomes of a client (the destination) and understanding the client’s current circumstances (the starting point). The adviser then puts in place the financial solutions (the vehicle) to help you achieve your objectives.

But as with any journey, the minute that you set off, everything changes! Financial markets change, your circumstances change, maybe your objectives change. So your financial adviser needs to travel on your financial journey with you.

Unlike in your bank branch, your Financial Broker will be a consistent figure throughout this journey. Continuing to guide you and redirect you as needed.

Financial advice was never more valuable. Can you afford not to get it from a Financial Broker?

3 things you might not know about Mortgage Protection Insurance

Mortgage Protection Insurance is life assurance cover that will clear your mortgage in the event of your (or your spouse’s) death. While it is obviously very necessary, taking out this cover often comes at a bad time for consumers, who are to the pin of their collars facing a new mortgage and all of the costs associated with a new house. For this reason, it is really important that you get the best (often the cheapest!) cover in place. Here are three points that you may not have known about mortgage protection insurance, that just might help you to get the right policy for you.

You don’t have to take out this policy with your bank. Your bank may arrange your mortgage for you. They may also insist on you having mortgage protection insurance in place as a condition of your loan. That is their right. However they cannot by law insist on you taking out this policy with them and cannot make the loan conditional on you doing so. You retain the right to take out any mortgage protection policy available in the market, once you ensure the required amount of cover is in place.

Now this is really important!

Your bank will usually have access to the policies of a single life assurance company. However your Financial Broker will have access to policies of all of the insurers in the Irish market, making sure that you get the very best / cheapest policy to meet your needs. Your bank must accept this policy.

Your cover does not have to decrease in line with the mortgage

The life assurance cover within traditional mortgage protection policies decreases in line with the outstanding mortgage amount. This is the minimum amount of cover that you must have in place – enough to clear the loan at any stage during the lifetime of the mortgage.

However you can have more cover in place. As part of a wider financial plan developed by your Financial Broker, you might choose to have a level amount of cover that will not fall, possibly for the original mortgage amount. In the event of death, the life cover amount will then be greater than the mortgage due, as some of the mortgage will have been repaid in the meantime. This excess cover is simply then paid to your estate.

There are many other benefits available

One of the benefits of taking out your Mortgage Protection insurance through your Financial Broker is that you can tap in to their knowledge of all of the plans that are available in the market, and access features that might not be available through the policy offered by your bank.

There are many other potential feature and benefits available through different insurers in the Irish market, and some of these features might just be very important to you. So talk to your Financial Broker and get the best policy in place for you!

Are you too young for a pension plan?

You are never too young for a pension plan. That’s it, end of article? But maybe you need to be convinced of this fact!

The benefits of starting your pension funding as early as possible are really immense. Now we are not suggesting that everyone should live a life of penury in their 20’s and 30’s in order to safeguard their lifestyle in their later years. But starting a pension plan early has a significant impact on your final retirement outcome and this is down to one main fact, the effect of compound interest.

The Rule of 72
To look at compound interest, it’s useful to consider a maths equation that is commonly known as “The Rule of 72”. This is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. All that you have to do is divide 72 by the expected rate of return. The answer is the number of years it will take for the amount of money to double. Consider two examples of how you can use this below;

• If you are aiming for a return of 6% p.a., it will take 12 years for your investment to double (72/6% = 12 years)
• If you want to double your money in 10 years, you will need to achieve a return of 7.2% p.a. (72/10 years = 7.2%)

The impact on your pension plan
This rule demonstrates that a contribution made to a pension plan in your 20’s or 30’s has the benefit of time on it’s side to grow very significantly from the time it is made, to your retirement age. And because you have this time on your side, you will probably also be willing to take some risk with your funds, with the aim of achieving higher growth rates.

These higher growth rates may be achieved through investing in the likes of equity (stock market) funds. If you had invested in the S&P 500 Index of shares from 1st January 1985 to 31st December 2014, your investment would have achieved a Compound Annual Growth Rate (annualised return) of 11.40 per annum over the 30 year period! Now of course previous returns are not necessarily a guide to future performance, but they give a sense of what can be achieved over a long timeframe.

So when you put higher potential growth rates and a longer term together, the impact can be significant. Instead if you wait until much later in life to start your pension planning, you will probably want to be more cautious in your investment choices (to limit any downside risk), thus reducing your potential growth rate. You also won’t have the investment duration to benefit from the compound interest effect.

So yes, live your life for today while you’re young. But doing this with some investment in your future will yield great benefits when you do eventually hang up your working boots!

In your 30’s? Here’s some financial advice!

Living through your 30’s can be a challenging time financially. It’s often the time when “big moves” happen in life: marriage, having kids, buying a home, career development etc. It’s a time to be enjoyed, and it’s also a time to be careful financially! You don’t want to spend your 40’s and 50’s trying to make up for a lost decade… Here are a few ideas to help you avoid that very situation happening.

Live off your income only
Living an appropriate lifestyle is crucial to financial stability. Once you start living beyond your means, credit card bills start racking up and you’re on a downward spiral. And when this spiral starts, it’s very hard to break out of it. The solution is to match your lifestyle to your income. If that means less nights out or luxury purchases, well that’s the way it has to be!

Don’t blow your bonuses!
While not suggesting for one minute that you should live a miserable existence with no luxuries whatsoever in your 30’s, bonuses are not an opportunity to just fritter away cash! Yes you and your family deserve treats, and bonuses might play a role in these.  However getting a bonus is also an opportunity to put a few euros away for a rainy day, whether that’s a war chest from which you’ll educate your children or indeed providing a boost to your retirement planning. Money saved now will make a huge difference in the future, as the impact of time and compound interest will turbo-charge your retirement fund.

Know your spending
Financial Brokers observe that one of the main challenges faced by clients in their 30’s is actually knowing where their money is going. Having a family budget is a critical element of personal financial planning.  To do this effectively, you need to actually track every cent spent over a period of one to two months. You’ll be amazed where money is being spent that you’re hardly even aware of. Is there an alternative to buying all those coffees every day? Can you cut down on taxi journeys and use public transport? Could your family shopping methods change, to feed the family in a more cost effective (and possibly healthier) way?

Focus on your career
Your 30’s are the time when significant career moves can happen. Are there opportunities for you to bring your career to the next level by undertaking further study or indeed by putting your hand up for more work? After all, your career is the driver of your income and increasing your income makes a lot of these challenges much easier to face. 

Debt is the enemy of savings
Of course you need a mortgage if you want to buy a house. But make sure you can afford your repayments. And keep that credit card in check! Servicing debt is a killer when trying to save money so beware of taking on debt that you cannot afford.

Above all, enjoy your 30’s! They are halcyon years, a time of great fun and opportunity. Live your life and set yourself up well for your later years too.

A financial broker, not just a salesperson….

I attended a Financial Broker Seminar some weeks ago where they presented the results of a survey which they had conducted with over six hundred random customers.  These customers agreed to contact a chosen selection of brokers and banks for financial services advice and some of them were at the seminar to share their personal experiences. I feel that some of the feedback from this panel regarding financial brokers is relevant and worth discussing.

I asked a question, expressing the fact that “I don’t sell televisions; I advise on financial products which could have a huge financial impact on a person or families life”. I also stated that “I like to inform every client of the services I provide, but when people just ask me for something specific like a life assurance quote, they can react indifferently to me when I try to inform them of the various other financial products I can provide”.

One of the panel responded with “If I only want a Life Assurance policy, I don’t want to hear about any other products unless I ask for it”. In a way, suggesting that they feel this would be wasting their time or possibly just a chance for a broker to try to sell them something they do not want.

Recently I visited with a client of mine who had just been told he had only 2 weeks to live. I visited him to pay my respects and say goodbye. While visiting, this man said to his wife and children “Drumgoole Financial Services look after all my financial stuff, contact them when I am gone”. I had met with him several times over the previous few months so his financial affairs were clear and in order.

I got the very sad news that he passed away the week I started writing this column. This client chose to be involved in the financial planning process. He discussed all the services we provided and chose to take out the policies he felt were most relevant for his family.

My relationship and work with him didn’t stop as soon as I advised (“sold”) on a suitable policy. It was a continual journey that included reviewing and altering his plans as his personal circumstances changed over time. I will now be assisting his family with the death claim process for his Pension, Life assurance and Investments. His surviving family will be able to rely on me to help arrange all of these affairs while they grieve the loss of their loved one.

There is a tendency for customers and financial brokers to avoid discussing these distressing subjects. I chose to share this factual sobering story to highlight that a financial broker can be an important supporting character in prudent financial planning.