What are the Mortgage Exemption Rules in Ireland in 2022
Food prices are on the up, petrol is through the roof, and now mortgage interest rates are set to rise – inflation has McGregor’ed us into a chokehold.
We may have to tap out.
Inflation aside, the possibility of ever owning a home is becoming an impossibility, so everyone’s looking for a loophole to get them ahead.
The rule holding potential homeowners back is the maximum lending of 3.5x your salary – and if you’re single, well, it’s even harder for you. It’s probably easier to get a property in the Upside-Down than in the real world right now (if you got the Stranger Things mention there, you are my kind of people). Plus you also need a 10% deposit (20% if you’re not a first timer)
What is a Mortgage Exemption or Exception?
You know those sneaky little loopholes that make getting a mortgage that much easier.
A couple of exemptions may help you get your foot on the property ladder, but what are they, and how do you even convince a mortgage lender to give you one?
Firstly, let’s cover those pesky rules that stop you from getting a whopper mortgage.
A maximum of 3.5 times your combined income (or single income for a solo buyer)
a) First-time buyers must have a minimum of 10% of the property value as a deposit.
b) Second-time purchasers plus must have a minimum of 20% of the property value as a deposit.
1. How To Get More Than 3.5x Your Income
There’s gold in them thar hills
Or rather, there’s the possibility of getting a mortgage exemption on your loan to income (LTI). That’s the capped 3.5 times your annual income that your bank can offer everyone.
You may be able to squeeze them a little tighter and get a 4.5x your annual income offer – sounds good.
But how do you get it?
This particular exemption is shrouded in some merlin type mystery. Still, we know that a mortgage lender is only allowed to offer this exemption to a small percentage of their mortgage applicants.
A maximum of 20% of their yearly mortgage offers for first-time buyers, but only 10% of their annual mortgage values for second-time buyers can avail of this exemption.
In plain English, 1 in 5 first time Buyers or 1 in 10 second time buyers should get an exemption.
Not great odds, are they?
So as you can imagine, the roster for this particular exemption fills up fast.
I took a gander through some of the social groups for homebuyers, and the one thing many of them advise is to apply for your mortgage as early in the year as possible if you are looking to score an LTI exemption.
It makes sense, first come, first served, right?
The early bird catches the worm.
First up, best dressed.
#thingsyourparentsaid
But if you’re too hungover even to contemplate making a mortgage application on New Year’s Day, don’t throw a pity party. You can get LTI exemptions later in the year too.
How?
It is, again, shrouded in mystery.
It seems to be left entirely at the discretion of the mortgage lender, but the positive news is that it’s possible to get one, and it can make your homeowner’s journey a lot easier.
2. How to Reduce Your Mortgage Deposit
This little gem is called the loan to value (LTV) exemption.
Loan to value is the ratio between the mortgage and the property value.
Imagine Johnny and Amber, the property they want costs a whopping 250,000 – lucky them – and the mortgage lender offers them 150,000. Their loan to value is 75% (150,000/250,000) 🤓
The general limitation most mortgage lenders have to stick by when it comes to their LTVs are:
90% LTV limit for first-time buyers
80% LTV limit for non-first time buyers
If you are a first-time buyer, you will need, at minimum, a 10% deposit to cover that extra 10% that the bank isn’t supposed to lend you.
Again, sounds reasonable enough, but if you want to purchase a gaff worth €350,000, you will need at least 35Gs stashed aside for the deposit. That’s a lot of cash that many of us aren’t in the position to save.
Plus, you then need extra funds on top to cover stamp duty, solicitor fees, etc. – the list goes on.
So, what if I told you there is the possibility of reducing your deposit requirements by, well, a lot.
Like the LTI mortgage exception, mortgage lenders are given a capped percentage of their annual mortgage values that can be given a cheeky LTV mortgage exemption.
Banks can offer lower deposits to 5% of first-time buyers
And to 20% of second-time buyers.
It’s even slimmer pickings for LTV exemptions than LTI, but it’s possible.
I’ll be honest I had a tricky time finding some stats to back up the LTV lending habits, but I found this doozy for you from 2018.
The banks gave only 21 LTV exemptions to first-time buyers in 2018. However, a total of 1,654 went to second-time buyers
Do with that what you will.
Okay, now it’s time to hit you with a hard truth.
The lion.ie Magic Formula © to Getting an Exemption
Your ability to make your mortgage repayments is always the first thing a mortgage lender will look at. If we believe what the evidence suggests, the higher your combined (or solo income) is, the better your chance of getting a mortgage exemption.
Also going to need to have an impeccable credit record, so you’re going to struggle with a poor ICB record.
It looks like the magic formula seems to be:
High earnings (being a professional in secure employment helps) + no loans + clean credit record + no shenanigans in your bank account (no overdraft) = best chance of exemption
Look, it might not help the little guys as much.
The rules are still shackling those with lower incomes to the struggle of the rental market, but there’s hope, and that’s something.
If you are considering a mortgage, get your house in order over the next 6-12 months and make sure your application is as close to the lion.ie magic formula © above as possible.
I wish you good luck.
Oh yeah, one last thing.
SHAMELESS PLUG FOR MORTGAGE PROTECTION
If you manage to get a mortgage and need some help with mortgage protection, I’d love to help.
Complete this short questionnaire, and I’ll be back with some quotes (no obligation!)
Thanks for reading
Nick
