November Mortgage Market Update
Mark Solon joined us to speak on mortgage on Tuesday 23rd of November. Mark talked us through some of the myriad of reasons which has led to the shortage of housing, whether it's cheaper to rent or buy, what inflation means for mortgages and self employed mortgages.
Some of the reasons he outlined which have led to the housing shortage include:
Population growth:
A growing population and inward migration has meant that a market already lacking in supply is squeezed by a growing population.
Covid:
The problem of a squeezed supply has been exacerbated by the stoppages caused by Covid.
Rental Market:
We don't have enough stock for the demand. The rental increases we are seeing today are exponentially larger than the associated increases in periods such as 1975-95. We need more supply. We need more Purpose Built Rental Market Housing.
Unfortunately there's no overnight fix. Property construction takes time. Mark has cited that there needs to be a nationwide focus as the focus is currently heavily skewed towards Dublin. If you have managed to find a suitable property and deposit Mark below talks through some of the mortgage options and important considerations for anyone applying for a self employed mortgage.
In terms of buying versus renting, in the main, Mark said that 'it's significantly cheaper to pay a mortgage than to rent home', with the exception of certain homes in certain key Dublin postcodes.
Fixed rate mortgages and inflation:
Are interest rates going to increase? We don't know for certain and there are a number of different factors at play. There's been a dramatic impact from Evergrande and reports of big decreases in property values in China.
The increase or decrease in interest rates is quite a politically motivated decision with a number of different countries e.g Italy, Germany, France all with differing views.
Mark said he personally doesn't see a big increase in the near term and believes we may see zero interest rates for the coming years.
ECB Interest rates and mortgage interest rates
Any sort of increase in an ECB base rate will increase Irish interest rates.
We pay significantly more for our mortgages than other EU countries, this is in part because of the higher buffers our banks must have in terms of capital reserves further to the financial crisis (the Daily Millenial explains this very well here.).
The introduction of long terms fixed rates is new to the Irish mortgage market. Up until recently with the exception of the rebuilding Irish mortgages, the longest term for the best part of the last 15 years, was 10 year fixed. Finance Ireland and Avant introduced 10, 15 and 20 year products, which Avant have now been enhanced with 25 year plus. While you can get up to 10 years with AIB, BOI etc, it's only Finance Ireland, Avant and Rebuilding Ireland that offer over 10 years.
According to Mark, ''all of the best mortgage product rates are fixed rates.'' he also adds that ''Knowing the exact repayment rate you have for the next 20+ years can be quite reassuring for some people.
Above Avant Mortgages (One Mortgage) rates.
Aggressively reducing your mortgage
You can really chip away at your mortgage by in addition to paying your scheduled monthly instalments, overpaying by up to 10% every year. (Of course that is aggressive and definitely not possible for everyone.).
There are some quite competitive rates out there such as if you are in the under 60% LTV you could take out the Avant seven year rate 1.95%.
Avant are a little bit different to other providers in how they assess e.g how they assess civil service income versus other banks and they won't be the silver bullet for everyone but Mark cited how they do have very compelling rates if you fit their criteria.
Self employed mortgages
In terms of self employed mortgages, Mark discussed the options for this group. He started by breaking these down into the following groupings:
• A Sole Trader (e.g. Solicitor, Accountant, Plumber, Electrician)
• Major Shareholder in a Ltd Company (20% and above) (e.g. IT Contractor, Accountant, Electrician etc)
• Work as a Contractor in an Umbrella Company Structure (PAYE or Director structure)
What can be counted for a self employed mortgage?
For a Sole Trader / Partnership it is the Maximum accessible Income is defined as (Averaged over two years):
Net Profit before Tax + Depreciation + Interest paid on borrowings + applicable expenses + one off items
Minus
Annual loan payments / Lease / HP Repayments
For Company Directors / Major Shareholders it is the Maximum Income is defined as (Averaged over two years):
Directors Remuneration + Net Profit before Tax + Depreciation + Interest paid on borrowings + one off items
Minus
Annual loan payments / Lease / HP Repayments
Important things to consider for Self Employed Mortgages:
The percentage holding of the limited Company / partnership is relevant
If most recent year is less than previous year, likely to go with most recent figures.
The strength of the company; company bank account; cash-flow etc are all important
Impact of COVID (& Brexit?) - covid related items in the accounts such as EWSS or TWSS can't be taken into account when assessing any profits for the year.
You will need Management Accounts YTD (if more than 3 months since year end)
Future contracts / projected accounts - upcoming large contracts can help with the amount of mortgage you receive.
Want to learn more about your options?
If you would like to book a virtual appointment to discuss your mortgage, or mortgages for investment properties with Symmetry Financial Management, email Mark at mark@symmetryfinancial.ie.