There is a broad misconception that to qualify for a mortgage, applicants need to have taken out credit before. As mortgage applications go here in Ireland, this is wrong!
Mortgage applications are serious business.
Applicants needs to have a good credit record.
They also need to have the required deposit.
Plus, they need to have the repayment capacity to show affordability.
Those are the three ‘legs’ of any successful mortgage application here in Ireland, and generally globally.
Tried and tested
Credit and mortgage underwriting follow a tried and tested process. This process assesses the applicant’s suitability for a significant amount of debt. Plus, the fact mortgages last for 20 – 30 years (or more), lenders need to examine the application in detail. This application also needs to be stress tested.
Myths abound
But there is a myth when it comes to taking out credit.
If the applicant lived in the USA, Canada, or the UK, taking out a loan would be considered prudent. This is because mortgage applications are assessed using what is referred to as ‘credit scoring’. This is a complex system of applicant assessment that factors in a range of personal finance metrics, including existing debt.
But in Ireland, assessment of an applicants’ credit history is simpler. Here, the applicant needs to make sure they have no ‘derogatory’ on their credit report. In other words, if they have a loan already, there are no missed payments. But the absence of having a loan repayment history is not in itself an impediment to a successful mortgage application.
Rise of the global ‘finfluencer’ can be misleading locally
Finfluencers, those that share their financial tips, guidance and advice via a mix of social media channels know no boundaries. A finfluencer based in the US can be consulted by a first-time buyer in Athlone. Alternatively, one from the UK could guide someone in Killarney. But their local knowledge is so limited, it is often wrong. For example, how the Central Credit Register operates in Ireland is very different to the UK. In fact, much of how personal credit reports operate in the UK are broadly similar to the US and Canada.
Beware of online personal finance influencers with little or no knowledge of how money works in Ireland.
Unnecessary debt
Applying for and taking out debt in the hope of boosting a mortgage application could be counterproductive. Every mortgage application is underwritten on the basis of affordability. This can be where an application can run into difficulty. This is because a mortgage underwriter MUST include the monthly repayments into the overall debt-ratio of the applicant(s). Depending on the case, this can depress the amount of mortgage the applicant qualifies for.
All credit is personal
Personal credit applications are entirely personal. Here in Ireland, there are local application criteria applied by each of lenders, including credit unions. When it comes to mortgages, there are also various supports, not least, the Help-to-Buy. This offers qualifying applicants a significant refund of past income taxes.
Despite some efforts to be all things to all people, finfluencers are almost always too broad to be personal. And when it comes to those important financial decisions in your life, make sure they are meaningful. Mortgages, taxes, pensions, personal financial planning and coping with risk and change. Those are simply too important to not include professional guidance. That is NOT what TikTok or other social media finfluencers can ever offer!
Frank Conway is a Qualified Financial Adviser and Founder of MoneyWhizz.
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