My son and his wife are living with us. They have €30,000 saved. They take home about €700 a week on account of the pandemic. Is there anyone out there that would give them a mortgage? The cheapest house is around €175,000.
Ms M.McK., email
There are several factors at play here. Most critically, there is the frustration of a generation of young people who find themselves struggling to access affordable accommodation in the purchase market. Second, there is the added complicating factor of Covid.
The simple answer here is that, all things being equal, your son and his wife should be able to access a mortgage. However, the situation is complicated by Covid and that may mean they have to wait until later this year or even early next year.
With "take home pay" between them of €700 a week, your son and his wife appear to have a gross income of just under €50,000. Under Central Bank mortgage lending rules, they can borrow 3.5 times their gross income – so around €175,000 coincidentally.
As first-time buyers, they can borrow 90 per cent of the value of a new home, so their maximum borrowings of €175,000 would be enough to buy a home worth €192,500 with a 10 per cent deposit from them.
As it happens, they have more than that 10 per cent deposit – €17,500. They have €30,000, so they could be in the market for a property up to around €205,000. You don’t say where you are but that is above the minimum cost you cited for property locally.
However, there are always costs involved in buying a new home in terms of legal fees, stamp duty of 1 per cent, etc. And that’s before you buy a stick of furniture.
KBC is currently the most competitive operator in the market for a couple like your son and his wife, according to price comparison site Bonkers.ie, offering a 2.3 per cent two-year fixed mortgage rate for buyers looking for more than 80 per cent of the value of the property. That would cost them €910 a month for a 20-year loan and €673 a month if they extended the borrowing period to 30 years.
Those repayments would account for between 22 and 30 per cent of their net earnings which is not an unreasonable position. Of course, remember that while the payments over 30 years are lower on a monthly basis, the total sum repaid will be more than on the “more expensive” 20-year loan.
In this case, assuming no rate change over the whole mortgage, you would pay €242,280 over 30 years for their €175,000 mortgage, or €218,400 over 20 years – a saving of close to €24,000.
Next best, depending where you are in the State, is Avant – part of Spanish bank BankInter – which offers a three-year fixed rate of 2.35 per cent. That would cost €914 a month over 20 years and €677 a month over 30.
Covid factor
You mention that there take home pay is €700 “on account of the pandemic”. This indicates that the pay has been reduced by the pandemic. It could also be that they are relying on the pandemic unemployment payment although from your wording I am assuming this is not the case.
Either way, most lenders are being remarkably chary about allowing aspiring homeowners draw down mortgages where there income or employment is affected by Covid. Basically they are nervous that when the economy reopens, employers may find that a lot of these jobs are no longer sustainable and have, in effect, been on artificial life support during the pandemic.
No bank wants to agree a 20 or 30-year loan only to find it is under strain within months.
For people whose employment is affected by Covid – including those on wage subsidy as well as those in the transport, hospitality and retail sectors – the reality is that they may need to wait until the economy has reopened and they can show at least six months of sustained normal earnings before they will consider a mortgage loan.
So, in sum, even at net income of €700, with the savings they have, your son and his wife should be able to buy a home at the €175,000 to €200,000 level ...but they may have to wait until things return to normal after the pandemic and hope that pressure on housing supply does not push prices out of their reach.
