Ultimate Guide for First Time Buyers

Buying a property is the biggest transaction you will make in your life. Being a first time buyer can therefore be a little daunting so we’ve set out a guide to help set you on your path to your first home. More than likely, you are planning to finance the purchase of your first property with a mortgage. In Ireland, if you are a first-time buyer, a 90% limit will generally apply to the mortgage you can get. This means you will need a minimum deposit of 10% of the property. According to the most recent Daft.ie quarterly report, house prices are averaging in Dublin city at €405,259, Cork city is averaging at €313,436 and the average nationwide price of a house is at €290,998.

If you can afford to buy a house worth €405,000, your mortgage provider may lend you up to €364,500. You will need to have the remaining €40,500 yourself for what is known as the deposit.

Considerations for First Time Buyers Before Applying for a Mortgage:

1. Savings

Implementing a savings plan for your money not only will help you towards your goal of getting on the property ladder but it will also be a demonstrable way to show the lending institutions that you’re capable of a disciplined savings habit. There are a number of comparison websites available that you can use to compare the various interest rates on savings in order to find the best one; just Google: “compare bank savings interest rates”. Of course, this might mean transferring your banking to a different provider but changing banks literally takes minutes and could be well worth it depending on the savings interest rate offered.

One particular financial app that has seen massive usage growth in Ireland in recent years is Revolut. It’s a financial technology company that offers banking services. Along with being a handy payment tool on your smartphone, it is also a fantastic way to begin saving. They have a feature called “Revolut Vaults” and you can tailor them according to your saving goals. You can also have group vaults thereby allowing you to save funds with a partner if you’re planning on purchasing as a couple. There are many features to Revolut Vaults to encourage you to save further; you can set goals and track your progress in their easy to use app. Other apps that are similar to this include N26 - their “Vaults” equivalent is called “Shared Spaces” and that essentially offers the same possibilities to Revolut.

2. Documenting Your Ability to Pay Rent

When you’re applying for a mortgage, the prospective lender(s) will want to see evidence of your ability to manage money on an ongoing basis. Paying rent is of course a perfect way to display this to them. If you’re renting from a landlord, you will be able to show the monthly outgoings. If you’re paying by cash to your landlord, try to approach them explaining that you’re applying for a mortgage and ask if they’re amenable to you setting up a bank transfer instead of paying cash each month. If they refuse this, at the very least withdraw the rent amount on the same day of every month; you could also ask for a receipt for your cash. These could all be used to present your case as part of your mortgage application. If you have moved home to save money on rent, you can submit your previous rental outgoings if you had rented previously.

Your prospective lender will also likely “stress test” your application to see if you can cope with a future increase in mortgage interest rates (that’s the rate the lender will charge on the amount you borrow for the mortgage). As a result, you should try to regularly save or pay rent that’s around 10% more than the monthly mortgage repayment figure you’re hoping for in your application.

3. Credit History / Overdrafts

Lenders will look for recent bank statements usually of a six month duration. They will see if for example, you regularly go into your overdraft (if you have one). Sometimes people might use an “unauthorised” overdraft where the bank allows you to dip into extra funds (at a fee of course). This will all be apparent to the lender when making your mortgage application. They will also run credit checks to see your loan history repayments; ideally you wouldn’t have had an issue with meeting any loan repayments. If you have had loan repayment issues in the past, it won’t necessarily rule you out for mortgage approval but it might affect the value of the mortgage for which you will be approved.

4. Unnecessary Spending

In the months leading up to your mortgage application, you need to be conscious of what you’re spending. We really like this “Spending Calculator” from the Competition and Consumer Protection Commission as it helps to figure out what you are spending every month, or every year, on items that you might not really have in your budget. It will also make you conscious of how much you spend over a year on certain items and possibly make you think twice before spending frivolously in the future. Most of the main banking apps also provide a breakdown of your spending on a monthly basis. Lenders definitely won’t want to see patterns of spending on gambling apps for example as it would be a red flag to them.

5. Stable Employment

You will need to be able to confirm that you are not in the probationary period of your employment when applying for a mortgage. As a result, it’s not a good idea to change your job within six months of making your mortgage application as the lender will want to see stability in your employment to back up the viability of you being able to fulfil your repayments.

Can You Afford It - How Do You Know What You Can Borrow?

It is vital that the costs associated with buying and maintaining a property are taken into account at the start of your property journey. You don’t want to aim towards a figure and realise too late that in fact, on a month to month basis, you cannot afford to buy and cannot afford to pay the associated monthly running costs required. To prevent this being an issue, examine your current monthly outgoings and you will see if you would be able to afford the monthly mortgage repayments you’re aiming towards. The following costs need to be factored in:

Costs Before Moving In

• Stamp duty (1% - 2% of the price of the house)
• Legal fees including conveyancing (Conveyancing flat fee from €800 + €1000 approx. for outlays that can include land registry fees, search fees, folio registration etc. so best to budget for around €2000 in total)
• Survey costs eg drains (€200)
• Engineer’s report (€450)
• Moving costs
• Repairs, decoration, furniture

Costs After Moving In

• Maintenance & repairs
• TV
• Broadband
• Property tax
• Waste management charges
• TV licence / streaming provider fees
• Management fees (related to an apartment or multi-unit development)

Government Initiatives For First-Time Property Buyers

The good news is that there is help available to you as a first time buyer.

Help to Buy Scheme

First introduced in 2017, the now-called “Enhanced Help to Buy” scheme has been extended to December 2022. It applies to new build properties including self-build homes; it is a scheme that provides a tax rebate of up to €30,000, or 10% of the purchase price of a property (whichever is less) for homes priced at €500,000 or less. All information available here: https://www.revenue.ie/en/property/help-to-buy-incentive/index.aspx

Local Authority Home Loan

This is a government backed scheme available since the 4th January 2022 that offers low, fixed interest rate loans for amounts in excess of the 3.5 times salary cap. It can be used to purchase a new or second-hand property or for a self-build anywhere in the country. A Local Authority Home Loan provides up to 90% of the market value of the property. Among other requirements as part of your application, you must provide proof of insufficient mortgage offers of finance from two regulated financial providers. All the information you need is on the Local Authority Home Loan website.

First Home Shared Equity Scheme

Macroprudential rules applied by the Central Bank of Ireland allow for mortgage borrowings to 3.5 times a salary as we’ve previously mentioned. If, after multiplying an individual’s salary (or joint salaries for a couple) by 3.5, they still can’t afford a property, that’s where the First Home Shared Equity Scheme comes in. The Government will make up the shortfall, up to a maximum of 30% of the total price of the property in an equity loan. They (the Government) lend you the money and charge interest on this loan. In addition, the Government takes an ownership stake in your property equal to the percentage of the property’s value that they have contributed thus explaining the word “equity” in the scheme. According to recent reports, this scheme will be available “from the end of Q2 [of 2022]” as per the current housing minister Darragh O’Brien. We have a detailed guide on how this affordable purchase first home shared equity scheme will work. It should be noted that a maximum equity stake applies of 20% if Help-to-Buy is used; the 30% maximum equity stake can be applied when Help-to-Buy is not used.

Mortgage Broker or Bank / Building Society?

The next step is choosing how you’re going to finance the purchase of the property. Assuming you’re not lucky enough to have the ability to buy the property with cash, a mortgage will be your likely route to home ownership.

This is when you need to decide whether to use a mortgage broker or go directly to a lending institution such as a bank or a building society like AIB, Bank of Ireland, EBS or similar. Mortgage brokers are intermediaries between you and a financial institution. Brokers are independent and in general (but not always) are not aligned to any particular bank. Moving forward with a broker for your mortgage application and not directly with a bank or building society doesn’t mean you miss out on any of the benefits/offers given by a bank. The broker can advise you on the best rates currently in the market in that they will do the “shopping around” for you. Brokers are regulated by the Central Bank just like commercial banks, building societies and any independent mortgage providers. One reason some people go directly to banks/building societies for their mortgage as opposed to through a broker is because they might have a history of dealing with that bank or building society and have built up a relationship over a number of years and they might feel it will help with their application.

You can also make applications to more than one bank and in terms of receiving an offer of a mortgage, you don’t have to go with the first one offered to you. If you get approval, compare the rates carefully.

Your Meeting With the Mortgage Provider (Bank / Building Society) - What to Expect

Of course this is an important meeting and these institutions have dedicated staff who will meet you to explain the steps required. Don’t be afraid to ask questions as they guide you through the process.

In general, for any mortgage application, the documentation required will consist of:

• ID (passport or ID card)
• Confirmation of current address e.g. a recent mobile phone bill
• Your most recent Employment Detail Summary (previously known as a P60) if you’re a PAYE employee / two years of certified audit accounts if you’re self-employed.
• Last three months of pay slips
• Six months of bank account/business bank account statements
• Credit card statements
• Any other information relevant to your current financial situation.

Once you have your documentation in with the mortgage provider, on average you could be waiting up to two weeks for an answer in relation to your approval. At that point, you can begin your property search with a status of “finance pending”; some estate agents will be open to this but many won’t and it’s better to be upfront about your financial status however be sure to update them when / if you achieve “mortgage approval”.

Mortgage Exceptions / Exemptions Explained

Mortgage exceptions and exemptions are essentially the same thing. The Central Bank of Ireland rules state that mortgage providers should only lend a buyer 3.5 times their salary and the borrower must have access to a 10% deposit. At the beginning of every year, mortgage providers have a certain number of exemptions that they can use. As of 2021, they can carry forward any unused exemptions - this is good news for mortgage applicants. Exemptions allow these mortgage providers to step outside the rigidity of the Central Bank guidelines.

There are two types of mortgage exemptions:

1. Loan to Income Exemption

This exemption allows the mortgage provider to offer buyers up to 4.5 times their salary. It should be noted that in any one calendar year, one in five of mortgages that lending institutions give out to first time buyers can be in this segment. For non first time buyers, mortgage providers can only approve one in ten mortgages at the higher 4.5 times limit.

2. Loan to Value Exemption

Typically, a non first time buyer will be required to have at least a 20% deposit on hand which means they are eligible for an 80% loan to value mortgage. Exemptions are available such that lending institutions can issue higher LTV loans, up to 90%, to non first time buyers.

How Do You Get an Exemption?

Speak with your mortgage broker / lending institution about the possibilities of an exemption. You will need to display solid examples of repayment capacity so this might be documented in the form of rental payments over the course of a year for example. Most lenders will only consider a decision on an exemption when you have a specific property in mind. We have a specific post that covers everything you need to know about mortgage exemptions / exceptions.

Moving Onto the Next Stage

If you have found a mortgage broker / lender, gathered all your documents and submitted your application, you might have received what is known as mortgage approval in principle. This is a statement of how much the mortgage provider is prepared to lend to you, in principle. This differs from the letter of offer. Estate agents will accept offers at the approval in principle stage so you can start looking at properties and attending viewings. The letter of offer isn’t formally provided to you until you find an actual property to buy. It should also be noted that formal “drawdown” of the mortgage doesn’t happen until nearer to the closing of the sale. This is when your chosen lender transfers the approved amount to your solicitor who in turn transfers it on your behalf to the seller’s solicitor.

A Few Key Points to Note When You Have Achieved Mortgage Approval:

1. You will be quoted an interest rate on your mortgage approval letter (see in the image example below). This rate will be set only on the day the mortgage is drawn down so it could be different to the rate shown on your mortgage approval letter.

2. You will need to get mortgage protection insurance and home insurance as part of the home buying process (they form part of the loan conditions before full mortgage drawdown). Remember that you don’t have to buy these from your lender even though they may quote you prices for them. Shop around online for savings on both.

3. Mortgage approval is only valid for a specific period of time; this typically ranges from six to 12 months, depending on your mortgage provider.

Private Treaty Sales Versus Property Auctions

Now that you have your mortgage approval in principle, it’s time to start looking at properties if you haven’t started that already. You might notice that some sales are marked as “For Sale by Private Treaty” and some are marked as “For Sale by Auction”. There is a difference between these types of property sales.

Private Treaty Property Sales

This type of property sale is the most common in Ireland. In private treaty, the estate agent (also known as an auctioneer) advises a vendor in assigning a guide price (also known as an asking price) to their house or apartment and the property is listed for sale on Daft and MyHome. Interested parties attend viewings and can make offers if they wish. The highest offer is presented to the property owner (the vendor) and if this is acceptable to them, the estate agent requests and collects a booking deposit from the bidder and the property is marked “sale agreed”. The key element of private treaty sales is that the buyer and seller can change their minds without penalty and the buyer can request their booking deposit back at any point up until contracts are signed.

If a vendor has decided to accept your offer, the estate agent will inform you and will request a booking deposit amount (the actual amount varies from agency to agency but will likely be at least €3000). When that booking deposit is received into the estate agent’s client funds account (that’s the account they have to have in place as part of their regulatory obligations), the property is marked as sale agreed. Once the property goes sale agreed, the private treaty sale moves to the segment from sale agreed to sold and this is known as conveyancing. Conveyancing is handled by the separate solicitors acting for the buyer and seller. Conveyancing is a series of steps completed by the property solicitors and it can take anything from six weeks and over to get to the “sold” part of the sale where the purchaser’s funds are transferred between solicitors and keys are released for your new home.

Property Auction Sales

With an auction, the seller in conjunction with their estate agent, sets a “reserve price”. This is the first major difference between an auction sale versus a private treaty property sale: a reserve price has legal implications, a guide / asking price (in private treaty sales) has none. Once the reserve price of a property in an auction has been met, the seller is legally obliged to sell and the bidder cannot withdraw their bid.

Generally, as we’ve already said, the private treaty sale model is the most common route that buyers in Ireland choose and most definitely, it’s the one that first time buyers tend to select. It’s less daunting an avenue when buying your first property. If you want to read further on the topic, we have an ultimate guide on private treaty sales versus auctions.

What to Ask at a Viewing

Now that you have your mortgage approval in principle, it’s time to start looking at properties if you haven’t started that already. You might notice that some sales are marked as “For Sale by Private Treaty” and some are marked as “For Sale by Auction”. There is a difference between these types of property sales.

Now onto the fun part where you get out and actually view some prospective properties. In terms of what to ask at a viewing, it is subjective depending on what you deem important. If you have no car, then the property being close to public transport will likely be a priority for you. If you have a car, a secure parking space going with the property might be one of your priorities. It is a good idea to write down a list of “non-negotiables” in terms of your requirements in a property before you attend a viewing. It could be the case that your list of non-negotiables grows as you attend more viewings. People only know when they can rule out a property from their wish-list by going out to view it. Top tip: drive or visit the area you’re interested in at different times of the day to get a good feel for it.

If you’re scheduled to attend a viewing, we recommend asking the below questions as part of your information gathering about different properties.

• How long has the property been on the market? Reason for asking: It will allow you to gauge interest in the property if it’s on the market a long time.
• Why is the vendor selling the property? Reason for asking: This might provide you with a good insight that hadn’t already come to mind.
• Is the vendor in a chain? Reason for asking: This follows on from the previous question in that you would like to know if the vendor has to wait for someone to sell their own second hand property before they can move out of the one you are interested in. This can cause delays in the sale process so it’s better to be aware of it.
• What aspect is the garden or the balcony? Reason for asking: This will allow you to know how much light the area gets throughout the day. You can verify this using any compass app on your smartphone.
• What is the year of construction? Reason for asking: It’s good to know if comparing to another similar property because naturally as properties age, problems may arise.

There will also be some questions that you might have about a property that you can verify for yourself at any stage; for example “are there any proposed new developments in the locality?”. You can check this yourself via the MyPlan.ie website. Simply input the address or the Eircode of the property you’re interested in and you will see any planning applications that have been lodged.

It is important to be diligent when purchasing a second hand property in terms of its structural condition. We recommend engaging a property engineer or surveyor once you move to the “sale agreed” stage of a property sale. With private treaty sales, all offers can be withdrawn up until contracts are signed so you’re very safe in this approach. Your chosen property engineer / surveyor will issue you a report outlining his/her assessment of the property from a structural point of view.

What to Bid on a Property

Ultimately, a property is worth what the highest bidder is willing to pay. In terms of what you’re willing to pay for a particular property, you are restricted by your mortgage approval amount. Some people might have the possibility of a gift from their family/parents to increase their budget limit. If you do, you will have to document that before going sale agreed with any estate agent. This can be documented in the form of a gift letter or alternatively your parents/family member can transfer their cash gift to your bank account and this statement can form part of your proof of funds. Proof of funds is the documentation that estate agents require to verify your ability to go sale agreed. You can read more about proof of funds in our guide.

With Auctioneera properties, you can see the latest offers in real-time on our website. We accept bidding increments of €1000. It might differ with other estate agents. With Auctioneera properties, if you offer the guide price, you will see an immediate deadline for offers set in place that counts down over the course of 15 days. After that point, the vendor will decide whether they wish to proceed with your offer or not. Remember it’s a private treaty sale so the ball is very much in the vendor’s court in terms of the decision making.

It’s important to stick to your budget of course. With non-Auctioneera properties, try to get some insight from the estate agent of a timeline relating to your offer if you were to bid with an offer of the guide price for example. Explain that you’re willing to move fast and have the funds in place but you would appreciate feedback on your offer in a timely manner. It might be difficult but it’s important not to become emotionally invested in a property because many can go outside your budget. Stay realistic but equally, you need to be prepared to express that you can move quickly, are not in a chain (an advantage of being a first time buyer!).