The different factors that affect how much you can borrow
In Ireland, lenders take into account a number of different factors to calculate how much you can comfortably borrow.
The type of mortgage you want will affect the amount you can borrow too.
In general, the following factors will influence how much money you can borrow for your mortgage.
● Are you a first time buyer? Or a subsequent buyer? The type of borrower you are can affect the amount lenders are willing to lend to you
● Your income, or the combined income of you and a partner if you are applying for a joint mortgage, will be a factor in determining how much you can borrow
● Your age will determine your mortgage term and this will influence how much you can borrow too.
● Lenders take into account if you have dependents. Lenders will earmark part of your income for support of your dependents, especially if they are under 18 years of age.
● Existing credit commitments you have every month will be factored into how much of a mortgage you qualify for. These include credit cards, overdrafts, loans and hire purchase agreements.
● Your monthly outgoings will be taken into account to calculate your mortgage borrowings. These costs can include utility bills, childcare costs and insurance.
It’s also important to know what your credit history is as this will impact on borrowing for a mortgage. You can check your credit record for free at the Central Credit Register
Once all of this information is taken into account, lenders will calculate how much you can comfortably borrow for a mortgage.
The Central Bank of Ireland set the borrowing limits in this country. These limits were set in 2015 and are designed to achieve three outcomes:
● Ensure responsible lending practices
● Ensure borrowers can afford their mortgage repayments
● Ensure the continued stability of the economy
Loan to Value (LTV) and Loan to Income (LTI) limits
Limits cap your borrowing at a certain amount to ensure that you are able to afford the amount you’re signing up for.
For a Loan to Value (LTV) limit, your borrowing will be capped at a percentage of the value of the property. The balance is then made up by the deposit you save.
The LTV limit you qualify for will vary depending on what buyer category you fall under:
● First time buyers qualify for a 90% LTV and need a 10% deposit
● Subsequent buyers qualify for a 80% LTV and need a 20% deposit
● Investment property buyers qualify for a 70% LTV and require a 30% deposit
A Loan to Income (LTI) limit caps your borrowing at 3.5 times your gross income. If you are applying for a joint mortgage, then the borrowed amount will be calculated on 3.5 times your combined salaries.
To illustrate, if your gross per annum is €40,000 then you could borrow up to €140,000. If you were applying for a joint mortgage and the two parties together have a combined income of €100,000, then the amount you could borrow is €350,000. If you need more than 3.5 times income we can arrange an exception to this rule subject to individual circumstances.