Mortages by Liam O’Brien
Applying for a mortgage as a first-time buyer is a daunting task, so it’s no surprise that many potential borrowers turn to the internet (and increasingly AI apps such as Chat GPT or Google Gemini) for advice before speaking with a bank or broker. Generally speaking, this is no harm – it makes sense to do some basic research any time you do something for the first time, after all. However, this approach does have some potential pitfalls, and from speaking with many first-time buyers it is clear there is still plenty of misinformation and outdated advice lurking out there on the world wide web!
To give one relatively common example, I still sometimes speak to people who believe that they need a positive, US-style ‘credit score’ to get mortgage approved in Ireland, and have even met potential borrowers who, for the sake of it, took out a small loan purely with the intention of paying it back on time. These well-intentioned folks mistakenly believed that doing so would give them a ‘good’ credit score ahead of their mortgage application, but Irish credit reports don’t work like this, and Irish mortgage lenders don’t look at an applicant’s credit history in this manner anyway (though they do of course care if you have previously gone into arrears on a loan or written down debt in the past). To spell it out clearly: you do not need to have a previous credit history to get a mortgage in Ireland. For many people, their mortgage will be the first loan they’ve ever had.
This example is one of the more persistent myths about what Irish banks and mortgage lenders are looking for (I blame this fact on us watching too many American TV shows!), but it is not the only one, so I thought it would be worthwhile to expand a little more on how the banks think when assessing a mortgage application.
Are the banks eternal pessimists?
First things first, it is true that banks tend to think in worst case scenarios. I don’t say this to worry or scare anyone who’s thinking of applying for a mortgage, but it’s worth bearing in mind as you try to understand the thought process of the people who’ll be running a fine-tooth comb over you and your finances! Put simply, the bank’s primary underlying question will always be: will we get paid!? This is obvious in the sense that they will want to see proof an applicant can afford the potential monthly mortgage payments, but the question will also underpin their assessment of your lifestyle (to the extent they can discern it from your bank statements) and the house you are hoping to buy. In the former case, for example, banks are always looking for behaviours that could one day become addictions. Gambling transactions and ‘excessive’ alcohol purchases (emphasis on ‘excessive’; you don’t need to be teetotal to receive mortgage approval!) are well-known ones, but less obviously addictive purchases such as Playstation and Xbox games/add-ons can also make the banks wary, if large in number. Their logic will be: if John and/or Mary are up all night playing PlayStation, how will they get up in time for work? And if they don’t go to work, how will they pay their mortgage?
The same pessimistic outlook will apply if you try to buy a home that is in any way ‘unusual’, or if it has a complication such as a contested boundary with neighbours or a right of residence for a third party. Here the thinking will be: if we ever have to repossess this home, will we be able to sell it and get our money back? And if the answer is not a simple ‘yes’, you can expect some pushback from the mortgage assessors. The bank might think John and Mary, with their strong income and consistent savings, are the cleanest case ever, but if they don’t like the look of the house they’ve decided to buy, they won’t be relaxing their rules, or taking a chance on anything, for John and Mary’s sake. Remember, the person assigned to assess your mortgage may one day have to explain their decision to his or her superior, so it is in their best interest to err on the side of caution. And with the average sized mortgage in Ireland now being well in excess of €300,000 – €319,187, to be precise — we are talking about large sums of money here, after all. No one wants to be the employee who signed off on a massive mortgage that was never paid back.
This brings me to an important, often overlooked point: we think of the banks as large, impersonal, and intensely bureaucratic organisations, but at the end of the day banks are made up of ‘people’. This applies even to the largest ‘traditional’ banks, such as AIB and Bank of Ireland, each of which has thousands of employees, most of whom operate behind the scenes and out of sight. Put another way, all of Ireland’s mortgage lenders are staffed by human beings like you and me – people who have both good and (hopefully occasional) bad days at work. When speaking with clients, I sometimes use the National Car Test (NCT) as an analogy: much like a mortgage application, the NCT is a ‘minimum standards/criteria’ test. If you pass the right tests, and tick the right boxes, you will pass/be approved, and most of the time the assessors ‘want’ to see you leaving with a smile on your face (it makes their own day easier, if nothing else!). Every now and again, though, you will run into the wrong tester on the wrong day, and that person will decide to query something, or take a stand on something, that would have sailed through without issue the day before.
This is very frustrating from a mortgage broker’s point of view, as we can never quite be sure what the banks will ask us when we submit an application, but that’s just how the system works. Wherever human beings are involved, unpredictability will be present, and no amount of bank guidelines will ever make matters truly black and white. And this is why ‘Google it’ is not always good advice. I’m biased, of course, but in my view, when it comes to mortgage applications, the best way of being well-informed on anything but the most basic information is to speak with a broker! So, if you do have any mortgage questions, in relation to the above or just in general, please don’t hesitate to get in touch with Moneytree Finance today.
