New beginnings - the steps in your mortgage journey
Conor McGowan, Head of Credit Products at KBC Bank Ireland, takes us through the steps to securing a mortgage
Conor McGowan, Head of Credit Products at KBC Bank, takes us through the steps to securing a mortgage
“Iunderstand the application process can be daunting for prospective homeowners,” says Conor McGowan. “It’s a big commitment. But I always tell people to engage with us early and our mortgage team will be able to tell you how ready you are, or what steps you need to take to get yourself ready.”
While the outbreak of Covid-19 has impacted every aspect of life, and deferred plans for many, for some people, the pandemic has increased the importance of their living space and facilities.
“People have used the past year to get mortgage-ready,” says Conor. “They are saving more, getting ready to move out of home, or have simply found that they they need far more space, and the pandemic has really highlighted that.
“While the landscape has changed, people are still looking for more choice and even better value when it comes to mortgage products.”
If you are thinking of applying for a mortgage, what are the steps to take?
STEP ONE – TAKE ACTION AND START THE CONVERSATION
“The first thing people generally want to know is ‘how much can I borrow?’” says Conor. “The second thing is ‘how much will it cost me every month?’”
KBC has a number of online calculators - which can be found on kbc.ie/mortgages which is a great starting point to answer both of these questions. The calculators will allow you to calculate your repayments, and if you are a switcher, how much you could save if you switch to KBC. Once you’ve done this, the next step is to speak to a member of the KBC mortgage team.
“When the pandemic hit, we enhanced our processes in our hubs to facilitate customers applying for a mortgage over the phone to make sure everyone was safe, while the process was kept as smooth as possible. Plus, being just a phone call away can encourage more people to ring and get the process started.”
Conor says after your initial conversation, if you feel you are ready to take the next step, it’s time to get prepared.
STEP TWO: GATHER YOUR DOCUMENTATION
Many homebuyers believe that the mortgage process starts with filling out an application form. While this certainly is the beginning of the process, in order to make the journey as seamless as possible, prospective homebuyers should have their supporting documents ready before starting an application. Things like a valid identity document (ID), recent payslips, and evidence of savings and borrowings can often be overlooked, and getting your documents together after the application has started may delay the process.
Conor says, “We may require additional documentation for those who are self-employed, so make sure you do your research ahead of time to avoid any unwanted surprises.”
There is a handy checklist on the KBC website, which outlines exactly what you need for your application.
To help you along the way, tick the boxes below as you gather everything together:
■ Proof of employment
→ If you are employed, you will need an upto-date employee status report completed and stamped by your employer within the last six months.
→ You will also need two recent payslips (latest within the last six months), and most recent employment detail summary (previously your P60).
If you are a self-employed applicant, you will be required to provide some additional documentation for proof of employment:
→ Financial/audited accounts – these should be from two of the most recent fiscal years signed by your accountant.
→ Tax returns – two most recent years’ tax returns (Statement of Liability (previously your P21) / Notice of Assessment), or Chapter 4 Revenue Certificate with full completed Form 11, and your most recent tax clearance certificate.
■ Bank statements – you need six months of continuous current account bank statements (latest dated within the last three months). These show that you are receiving a steady income and are capable of affording the mortgage.
■ Savings statements – six months of continuous savings/rent statements to verify savings.
■ Credit card statements – two months of credit card statements (latest dated within the last three months)
■ Identification – you’ll need photo identification in the form of a current and
valid passport, or a current and valid drivers’ licence. Depending on how you apply for your mortgage, further documentation may be required.
■ Proof of address – a utility bill with your name on it, dated within the last six months; a bank or building society statement issued in the last three months; or your original household or motor insurance documents (as long as they’re less than 12 months old) is also required.
Conor says, “If you’re making a joint application, remember that both of you will each need to bring all of the documents mentioned above.”
STEP THREE: ASSESSMENT
Conor says that affordability is the main area that is assessed when a customer is looking for mortgage approval.
There is a myth that if you frequently spend money on ‘things you don’t need’, your application will be refused, and the same goes for spending money on ‘silly’ things. You don’t need to hide your spending, but make sure you’re spending within your own budget, as this shows that you’re comfortable with repayments.
“It’s very important for people to have a standard of living outside of paying their mortgage,” says Conor. “We only want people to borrow what they can comfortably afford, because we want people to enjoy their lives, while still being able to pay their mortgage.
“So, don’t be afraid if you have coffee receipts or online shopping on your bank statement.
If you show good financial management and savings, that’s what matters! If you’re saving
€500 per month and paying €1,000 per month in rent, you are already showing you can afford €1,500 a month in a mortgage repayment.”
The bank then looks at income and other debts (car loans, credit cards) to determine how much you can afford to pay. From there, they can establish exactly how much you can afford to borrow.
Many homebuyers will start the application process when they have saved enough for a deposit. While the deposit is important, budgeting for other expenses should be considered. Solicitor fees, broker fees, valuation fees and Stamp Duty will also need to be factored into your homebuying budget.
First-time buyers and movers who apply on or before 30th June 2021 can get a contribution of €1,500 towards professional fees after they draw down. This is subject to the full amount of their mortgage being drawn down on either a 3, 5 or 10year fixed interest rate, or a combination thereof, and you must not exceed the maximum loan-tovalue or loan-to-income thresholds required by the Central Bank of Ireland. In addition, KBC must approve your mortgage application and you draw down the mortgage within the availability period set out in your Letter of Offer.* (see full terms and conditions below)
And the Government’s Help to Buy (HTB) incentive, a scheme for first-time property buyers of newly built homes to help with the deposit needed to buy a property to live in, is available to help with costs too. A temporary enhancement to the existing scheme has been extended to
31st December 2021, with the increased relief available up to a maximum of €30,000.
For more details on the HTB incentive, see www.revenue.ie.
STEP FOUR: APPROVAL IN PRINCIPLE
Once the mortgage team have checked your documents and personal circumstances, the information is sent to the credit department to be assessed. If your application is successful, you will receive an Approval in Principle (AIP), based on the evaluation.
“Having your AIP shows that you’re in a position to buy a home and you’re in a better position than a buyer who has yet to start the mortgage process,” says Conor. “AIP typically lasts for six months and while it is not the final approval, it gives you an idea of how much money you can borrow at the time of your application.”
When you find the home of your dreams, contact the bank to arrange the next steps.
“We will arrange a valuation on the property – through one of our appointed valuers – to show that it’s worth what you’re paying for it, and that the mortgage is appropriate for that property.”
Following this, you can progress to your formal loan offer. This is the contract between you and the bank. With your solicitor, you will review and finalise this before you draw down the funds.
STEP FIVE: CHOOSE YOUR RATE
Customers can choose from two different types of mortgage rates– variable or fixed.
■ A variable-rate mortgage - means that the rates can change at any time and so can your monthly repayment.
■ A fixed-rate mortgage - means your monthly repayment will remain the same for the period of time of your choosing.
It’s important to consider what best suits you when choosing a rate.
“A fixed-rate, by nature, won’t change,” says Conor. “So, if you pick a five-year fixed rate, for example, the repayment amount is what you will be paying monthly for the next five years. You will know exactly what you’re paying each month.
“The variable-rate is the opposite of this. It might be at a certain rate today, but if those rates go up, your payment will go up, but if they go down, your payment will go down.
“Customers tend to be looking for certainty and due to this, we have seen a lot of first-time buyers choosing a fixed-rate. If you know that your monthly repayment is going to be €1,200 for the first five years and you’re happy with that, it gives you security. The people we see choosing variable rates, often work in industries where variable income, or an element of variable income, is a factor. They might pick a variablerate mortgage, so they know they can make regular overpayments, without penalty.”
If you like both options, you can split your mortgage between variable and fixed, giving you the best of both worlds.
“I would always recommend discussing your options with a member of our mortgage team, so you can determine the best option available to you,” adds Conor.
STEP SIX: PROTECTION
Before you drawdown your mortgage, you will need to get both life and home insurance. Mortgage Protection Insurance means that your mortgage will be paid off if something lifechanging were to happen to you, or either party to the mortgage before the mortgage term is complete.
“We offer customers a range of products through our insurance providers, Irish Life. Home Insurance is also required before drawing down your mortgage and should you want us to arrange this for you, we can do it through Zurich Insurance.**”
So, what advice does Conor have for people getting ready to go through the mortgage process?
“I was a first-time buyer myself over 25 years ago and while the rules have changed a bit since then, the principles still remain,” says Conor. “It’s important that you prepare as early as you can. Make sure you are managing your finances well and keeping your current account in order, and it’s also important to remember to show some savings history.
“Always stay in touch with your mortgage agent and make sure you turn to them for any help you might need. It’s an exciting time but can seem daunting, so let the experts do the work.”