What First-Time Buyers Need To Know
Buying Your First Home
Knowing exactly what you need to do and how to go about it when it comes to getting on the property ladder for the first time can be confusing. From understanding how much money you need to put down as a deposit and how to get approved for the best-suited mortgage to knowing how to find the best home insurance policy and even what the best day of the week to move is, the housing market can be a potential minefield for first-time buyers.
Here at Chill Insurance, we offer plenty of free information to those looking to purchase their first home. To get you started, this guide looks at some of the essential information all first-time buyers need to know.
What constitutes a first-time buyer?
According to the official Central Bank of Ireland definition, a first-time buyer (FTB) is an individual who has never before, either by themselves or with others, purchased a house, apartment, or a site to build a home, in Ireland or abroad. When it comes to applying this definition to the sale and purchase of mortgages, a FTB is, “a borrower to whom no housing loan has ever before been advanced”.
But why is this distinction so important? Well, traditionally in Ireland, there were significant tax advantages of being a FTB - stamp duty was not required to be paid and a ‘tax relief source’ (TRS) on first-time mortgage interest was provided. However, TRS was abolished in 2012 and stamp duty rates were introduced in 2010 for FTBs.
That being said, there are still a number of key differences between FTB and Second and subsequent borrowers (SSB) that make this definition necessary. Firstly, FTBs only require a deposit of 10 per cent of a property’s purchase price, while SSBs typically need a minimum deposit of 20 per cent. Secondly, FTBs can take advantage of the Help to Buy rebate. This scheme is designed to aid FTBs in obtaining their deposit by providing a refund on income tax and deposit interest retention tax.
Can I get a first-time buyer mortgage?
Specialist FTB mortgages are available that differ from the mortgages on the market for SSBs. As a rule, a mortgage to the value of up to 3.5 times your annual income is available for FTBs. For joint applicants, this figure is based on a combined gross income. As discussed above, unlike SSBs that require a 20 per cent deposit in order to secure a mortgage, FTBs can borrow up to 90 per cent of the property value, therefore only requiring a 10 per cent deposit.
How do you get approved for a mortgage?
For the vast majority of people, before you can purchase a house you first need mortgage approval. At this point, it’s worth remembering that a mortgage is a long-term commitment between yourself and a bank - one that can last as long as 35 years - so you need to be certain that you have thought everything over properly and are personally ready for such a big commitment. Once you have decided that you’re ready, you need to prepare for mortgage approval. The process of getting yourself ready to apply for a mortgage can often take a few years and involves putting money aside to save for a deposit, paying off any other personal loans or credit card debts and generally working on managing your finances in a way that will pass the scrutiny of a bank’s lending officer.
Although FTBs do enjoy the benefits provided as part of the Help to Buy rebate incentive scheme, as well as lower deposit requirements, in order to secure a FTB mortgage, the key principles of mortgage approval still apply. These are:
- Your income should be secure - bear in mind that if you are a joint applicant, the incomes of both you and your partner need to be judged as secure.
- You have the correct cash deposit available - as a FTB, a 10 per cent deposit is required. For example, if the house you want to purchase costs €250,000, a cash deposit of €25,000 is needed. It is also important to remember that money for stamp duty and legal fees is required.
- You can supply acceptable evidence of affordability - this will be examined by your mortgage provider to ensure you can afford the repayments attached to the mortgage you have been offered, and can include a detailed analysis of your recent spending and savings patterns and rent payments.
- You have a good credit history and rating - your credit rating is based on your historic ability to repay loans. A well-managed financial history, with no loan or credit card debt, will mean you have a strong credit history. This in turn should make it easier for you to be approved for a mortgage.
How do deposits work?
A mortgage deposit is simply the amount of money a buyer must contribute upfront towards the property they are buying. As previously mentioned, the Central Bank of Ireland has set different rules regarding the level of deposit you need to pay based on whether you are a FTB or a SSB.
To reiterate, a FTB minimum deposit of 10 per cent is needed, with the bank paying the remaining 90 per cent. This 90 per cent is the amount you must repay with your long-term monthly repayments. For example, if you can afford to purchase a house for €250,000, your mortgage provider will lend you up to €225,000. You will be required to pay the remaining €25,000 yourself in the form of your deposit.
Similarly, if you are a SSB, you can typically borrow up to 80 per cent of the value of the property, leaving you to pay a deposit of 20 per cent upfront.
What is the best day to move house?
Although, on the face of it, the best day to move house is completely subjective and depends on your own personal circumstances, Friday tends to be a most popular moving day. Providing a gateway to the weekend, booking a Friday off work to complete your move allows for three consecutive days to deal with any unplanned issues, unpack and generally start to get settled in your new home.