Applications for mortgage exceptions are expected to surge to record levels in January as lenders respond to pent-up demand from borrowers, according to a mortgage expert.
They were paused for most of 2020 due to Covid-19 uncertainty, but banks are allowed to issue a certain amount of mortgage exceptions to Central Bank lending rules every year, notes Martina Hennessy, managing director of mortgage platform www.doddl.ie.
These allow banks to lend more than 3.5 times a person’s income or to allow second or subsequent buyers to buy a home with a deposit that is less than 20% of the purchase price.
They are often popular for mortgage applicants seeking to buy urban homes, where prices often exceed these income limitations.
"When a lender is assessing an application for approval they will review sustainability of income and security of employment," said Ms Hennessy.
With additional restrictions on movement due to Covid-19, many mortgage hopefuls may find that their employers avail of the Employee Wage Subsidy Scheme (EWSS), she added.
"In this case, while approval can be granted on a case-by-case basis with lenders assessing risk based on employer and industry, it should be noted that in general lenders will not proceed to loan offer until income is no longer subsidised," said Ms Hennessy.
Mortgage approvals hit record high levels in November, up 24% on the previous year, as applicants who had delayed buying decisions entered the market.
This is expected to have a follow-on effect on the exceptions market, which re-opens this month.
Mortgage applicants would be well advised to have all their paperwork in place so that they can hit the ground running if applying for an exception, added Ms Hennessy.
“Last April, exceptions were paused by many lenders due to the uncertainty in the market from Covid-19, so many mortgage applicants have been holding out until now when the chance of an exception is stronger,” she said.
“Exceptions run on a calendar year basis so the large majority will be processed at the start of the year, meaning borrowers need to be prepared to hit the ground running by having up-to-date paperwork to back up their applications and avoid any potential delays.”
Banks can apply exceptions over Loan-to-Income (LTI) caps on up to 20% of their mortgage business for first-time buyers and 10pc of second and subsequent buyer applications.
“As the proportion of exceptions granted by lenders increases, criteria around achieving exceptions can tighten for applicants as the year progresses,” warned Ms Hennessy.
She said that setting your budget and understanding what is achievable and affordable in relation to mortgages, is still important.
“Be aware of what is affordable in terms of repayments. Do not over-extend yourself and consider other future commitments such as childcare and other potentially large outgoings," she said.
“This is where a mortgage broker can really help you. As well as setting realistic expectations they understand what lenders offer the best options for your requirements and their different credit and exceptions policies.”