The COVID19 crisis has affected nearly every part of our lives for the past four months and those seeking to buy or sell property are no exception. Those seeking to borrow will be aware of some added difficulties which the pandemic has brought to the mortgage drawdown process.
The Central Bank’s Consumer Protection Code requires lenders to ensure from approval in principle to loan drawdown that borrowers can afford to service the loans they have applied for. The issue facing many borrowers at the present time is that their circumstances may have changed in the period from approval in principle to formal letter of offer to the pre-drawdown stage. For example, some borrowers may face employment uncertainty or be in receipt of the Government COVID19 unemployment benefit payment.
Máire Ni Mhaoldhomhnaigh, conveyancing and probate solicitor at Nolan Farrell & Goff outlines the current procedures, “Lenders will look at borrowers’ circumstances again pre drawdown and are seeking additional updated documentation pre drawdown in the current climate to ensure that their employment and ability to service a loan has not changed. If one borrower is in receipt of the COVID19 unemployment benefit payment, the bank may seek evidence that their partner can afford to service the loan by themselves if need be. The banks will assess borrowers’ circumstances and repayment ability on a case by case basis.
In general, banks are still lending but have stricter checks and more assessments of the borrowers’ ability to service loans which will usually mean additional checks pre drawdown.”
If you are currently in the market to purchase a property with the assistance of a mortgage, Nolan Farrell & Goff offers 3 key pieces of advice below:
- Approach your bank at the earliest possible opportunity to obtain approval in principle- even before starting to view properties. At the moment, loan applications are naturally taking a little longer so the earlier you obtain approval in principle and a formal letter of offer from your bank, the better. That way, by the time you have found a property you wish to purchase you will hopefully have approval in principle and be in a better position to advance to a formal letter of offer in a timely manner.
- Establish a relationship with one mortgage advisor at the local branch of your bank or a mortgage broker for the purposes of progressing your application to drawdown. Ask your mortgage advisor at the outset to outline the additional documentation which the lender may be likely to seek pre drawdown. You will need to engage with the bank more than usual in the current climate and you should have a contact within the bank to keep you appraised of additional documentation the bank will require as your application progresses such as updated payslips or possibly a letter from your employer confirming that your employment is secure. You may wish to put your employer on notice of the possibility of such requests so that the documentation can be furnished in a timely manner if required.
- Be aware that it may take a little longer than usual to get to the drawdown stage and completion of your purchase, perhaps by several weeks. If you are renting therefore you should only give notice to your landlord when you can be sure of the timeframe it will take to complete your purchase. In the current climate it would seem that there will be an overlap of a number of weeks to allow for any delays with completion of your purchase.
Nolan Farrell & Goff has the knowledge and experience to ensure that its clients are protected when purchasing a property where a mortgage is being obtained. This is done by ensuring that a special condition is added to the contract to the effect that the contract is conditional upon the borrowers being able to draw down the mortgage loan which has been approved by their bank.
That way, if the bank decides to withdraw the loan offer after the borrower has signed contracts due to borrowers’ change in circumstances, the borrowers can safely withdraw from the contract without any penalties and get their contract deposit monies back.
July Stimulus Plan
On a positive note, the Stimulus Plan announced by the Government in July contains some positive measures for first time buyers of new properties. Namely, the Help to Buy Scheme is due to be expanded for the remainder of 2020 to allow for an increased maximum rebate of €30,000 (up from €20,000) for first time buyers purchasing new homes.
This increase is proposed to expire on 31 December 2020 with all other parameters of the Scheme remaining the same. See link below for the details of the Stimulus Plan announced by Minister Donohoe.
NB – This is a guide for information purposes only and does not constitute legal advice. If you have an issue requiring legal advice, please contact any of the team at Nolan Farrell & Goff, whose numbers can be found on our website, www.nfg.ie