Banks have begun lending again but are now much stricter in applying lending criteria. Potential borrowers should be aware of the more obvious pitfalls when applying for a home loan.

You must first have saved the deposit of between 8% and 10% of the purchase price. You must also have saved the cost of legal fees which are likely to be between €1,500 and €2,000 plus Stamp Duty that will be 1% of the purchase price.

The Central Bank intends imposing a higher deposit limit of 20% from January 2015. Pressure is building on the Central Bank from Government, the lending industry and economic commentators to have them row back on this proposal on fears that first time buyers might be frozen out of the mortgage market as property prices increase.

If you are considering a property purchase, it makes sense to get approval in principle first to see what you will be able to borrow. You will need to show the lender that you have saved the amount of the mortgage repayment for the previous 6 months or that you have been paying rent equal to that amount.

A lender will want to see copies of your bank current account statements for the previous six months. They will also want six month’s credit card statements and a statement for any other savings account you hold. Lenders will scrutinise those statements looking for comfort that you are living within your means and are able to afford the future mortgage repayments.

Items appearing on your statements that will cause a lender to refuse a loan are:

  • Referral fees – debited for bounced cheques or unpaid direct debits or standing orders
  • Exceeding your overdraft facility on a regular basis
  • Using an online gambling facility is worrying for lenders

This applies to credit cards as well as your failure to make the minimum monthly repayment.

The ICB keeps a record of all your loans for five years after the loan has finished. Missed payments on any loan or credit card within the last five years will show up on your credit report and may adversely affect the lending decision. It makes sense to get a copy of your own credit report from ICB before you make any home loan application.