I read this on Sunday and haven’t been able to put the link up until today. I’ve a lot of time for Barrington’s column - she’s been pretty steady through the boom and bust but there’s something about this article that has a kind of ‘this time it’s personal’ ring about it. I have a reasonable knowledge of the current state of bank lending criteria and I know people who know a lot more. I asked somebody recently about AIB and they said that the starting mortgage amount is close to five times joint salary up to 160k - after that it gets into a different league and there tends to be more individual credit assessment done due to the sums involved.
So lets say that John could get 800k (the max 160 times 5). The next criteria is LTV - you’ll only get that 5X if you are on 80% LTV or less - John apparently is fine for that. Your profession counts next - Accountants are reasonably well up the scale - top are Health profesionals (Consultants, Surgeons etc). The Legal profession have dropped well down the scale apparently, unless they are employed primarily by the state. So our John isn’t in the top rank but he should be close.
Credit rating counts as well - unfortunately for John your credit rating is based on the worst of the applicants. You need a record of 24 payments of which you must have missed 2 or less to get a perfect score. If you miss 2 in succession thats worse than 2 over the 24 months. The article isn’t clear about this but it does mention the personal loan and issues with an overdraft. The personal loan itself also appears to be an issue. The 30k loan is probably relatively short term - say 5 years - so payments will be relatively high. It’s also unsecured - my guess is that AIB wanted to roll this in with the mortgage and that John, sensibly enough, didn’t like this idea - AIB will make more money and they’ll be able to secure it against the property. John could pay it off early by overpaying his mortgage but he probably won’t (few of us do) so AIB will more than double their money over the 35 years. Being sticky with this probably cost John a few brownie points - we’re back to the days when I first got a mortgage - you have to grovel. You might not like it but they have the whip hand even if we own them.
This leaves with the actual value of the property - John wants 290k and the valuation is 460k. 80% of 460k is 370k. Roll in Johns 30k and we’re looking at 320k. If the ‘Professional’ valuation is 10% over what AIB think its worth (say 420) then we’re about even with the loan asked for. As I’ve pointed out before bank valuers are generally more optimistic than they should be in a rising market and more sceptical than they should in a falling market. A valuation of what a property is worth now if you sold it does not neccessarily tune in with what the bank will think it is worth in terms of a 35 year mortgage. Remember also that John is buying from his father - he’s not putting in any of the difference between mortgage and valuation - he’s not as invested as the bank is. He and his partner have apparently managed to save about 11k - sounds like a lot but of 465k its about 2.5% - even of 290k its only 4%. Given their quoted after tax monthly income of 9k its 6 weeks living so the bank is seeing no history of saving - only a 30k loan - despite the high monthly income. In the end of the day a credit risk is based on a balance between the market value of the asset and the ability and motivation of the debtor to meet the debt. The asset is not being purchased on the market (which doesn’t help in clarifying the valuation) and the debtor appears to have insufficient credit history (partly from being abroad) to allow sufficient assessment of their repayment capacity. I wouldn’t be inclined to lend on this either.
The other aspect is affordability - there’s nothing said about the other outgoings - in general banks are looking for the Mortgage payment to be 30-40% of after tax and other loan payment income. There is nothing said about whether the couple have kids requiring childcare - another significant factor in any calculation.
All in all I don’t think this is as much a ‘no-brainer’ as Peter Matthews (who I would also respect) says it is. For KB it’s sloppy journalism - if I can do the analysis I’m sure she could have done. If John wants to get a mortgage of this magnitude I’m afraid he has to (like the rest of us) turn up with 10% of the price and/or without the 30k personal loan.
I wouldnt lend to that young bucko either. Theyre on a joint income of 170k and yet they have only managed to save 10k. Thats pathetic and is indicative of someone who is not financially prudent. On top of that he’s in debt! Jaysus. I wouldnt lend a penny to that feckless yahoo.
It was one of the so called Big Four who audited Anglo and said everything as A OK. Just before they required a 35bn bailout. Big Four my arse. Big feckin fraudsters, IMO.
MetalMike hit the spot. He has no mortgage and debts of €30k. By the time he clears that debt of €30k and the missus saves another €10k they will still look like a couple who spend heavily and have a crap savings history …even though he will have worked the spots off his record.
A bank nowadays would probably look at a capability to make savings of €30k a year between them…to balance the books like
Maybe he spent two years getting hammered and wearing a GAA jersey. Then came home and instantly got a job as a finance director of a multinational. Now, through no fault of his own, he is unable to put a roof over his head.
Its more like young Johnno here is used to the high life, sinking pints of Hoi-nee with the lads and racking up €30k debt while on his jolly to Oz. Buying a property from Daddy and they’ve 10.5k between them? Combined salaries of €170k? Boo-fucking-hoo. Surprised he didn’t try and put it on his credit card.
Dunno sounds like a WHV to me, Australian banks would not give a mortgage to a temporary resident.
Kathleen - what it looks like to me is someone without a continuous employment history (recent starter), no assets (30k debt in fact), no savings history, no deposit - looking for a 100% mortgage.
Not forgetting you could never repossess poor Johnny’s “family home” off him once he gets his little nest set up all nice n fluffy.
Bottom line I wouldnt give him a mortgage either. Come back to me in two years Johnny when you’ve got some employment history, your debts paid off and a deposit. We need to see a bit of skin in the game these days johnny boy.
A lot of people are likely failing to consider that all these provisions to “keep people in their homes” make it more and more difficult for people who don’t have homes (they own) to get one. If banks essentially can’t repossess the asset then they’d be crazy to give out a mortgage.