Whether you are starting out on your mortgage journey or currently hold a valid Approval in Principle from a lender you will have heard the buzz word “repayment capacity” being mentioned.
Repayment capacity is one of the most important factors that a lender will look at when it comes to applying for a mortgage. Lenders will want to ensure that you, as the borrower, are able to afford your proposed mortgage repayment on a monthly basis.
To keep it simple you can demonstrate repayment capacity through savings built up over a period of time, rent being paid through your bank account or both. Lenders will want to see evidence of your repayment capacity over a period of at least 6 months.
It is important to note that if you are looking to use your rent towards repayment capacity, this will need to be clearly evident on your bank statement with consistent payments each month.
In January the Central Bank implemented new measures for mortgages to allow a first-time buyer borrow up to 4 times their gross annual income. For anyone looking to borrow 4 times their annual income the lender will want to see 100% of the proposed mortgage repayment being evidenced by the borrower.
We are seeing some of our clients get caught out recently with rising mortgage interest rates. If you are not increasing your savings in line with new rates to meet affordability this will have an impact on your mortgage application.
For example, let’s look at a mortgage in the amount of €500,000 over a term of 30 years:
If we look at an average rate on the market at present of 4.00%, your repayments per month would be €2,387. If this rate were to increase by 1.00% your repayments would be €2,684. That’s an increase of €297 per month. The new increased repayment is what the lender will want to see evidenced through your bank accounts.
A call to your lender or mortgage broker will keep you in check and on track and will avoid any disappointment down the line.
For anyone starting out on their mortgage journey, Bank of Ireland have a first-time buyer mortgage saver account that will top up your savings by €2,000 assuming you drawdown your mortgage with Bank of Ireland. To avail of this offering, you do not need to hold a current account with Bank of Ireland. Terms and Conditions apply for more information see the Bank of Ireland website.
At Biograph we have an experienced mortgage advisory team who are available should you require any further information or assistance on above.