Borrowers have to know when to fold ’em

Getting a mortgage can be affected by your financial lifestyle, such as a gambling habit

HOUSE hunters are being refused mortgages because banks do not approve of how they have been spending their money. Close scrutiny of applicants’ lifestyles is adding to the pressure of having to prove they have earnings and a mortgage deposit that are big enough to meet Central Bank of Ireland lending restrictions that took effect in February.

One user of the personal finance website askaboutmoney.com reported that Bank of Ireland had refused a mortgage because of evidence of gambling on her partner’s bank account, even though he had not gambled in the previous six months.

The general requirement among mortgage lenders that applicants supply six months’ worth of bank statements before a decision is made is no mere formality. These documents are gone through carefully by underwriters who are trained to spot anything that puts a question mark over a person’s ability to repay.

While gambling is not the most common reason for mortgage refusal, applicants should be aware it can cause problems.

According to Karl Deeter of Irish Mortgage Brokers, a bank will not automatically reject an application if there’s evidence of gambling. “What they’re looking for is excessive behaviour. If someone is gambling five or six times a day, that’s reasonable cause for concern. There’s healthy gambling and unhealthy gambling; lenders want to determine which brand a person is engaging in.”

Donal Kiernan, chairman of the Addiction Counsellors of Ireland, said that banks were, above all, looking for evidence of a gambling habit. “If you gamble to a pattern, it means you are progressing. For example, if I consistently bet €5 on a horse, and then down the road I start betting €10, I’ll never go back to €5.”

How seriously gambling will be taken by a potential lender depends on how much you spend relative to your net disposable income. Harry Dwyer of Moneycare, a mortgage broker in Monaghan, said: “People spend money in all sorts of foolish ways. You could spend €2,000 on a suit. If you are gambling €100-€200 a month, it mightn’t be a problem if you have a disposable income of €5,000-€6,000 a month.”

A regular pattern of debits to a gambling firm will be viewed by a bank in the same way as payments on a personal loan. Michael Dowling of Michael Dowling Mortgage and Financial Services, a broker, said, while banks were not saying an applicant could not gamble at all, they were uneasy about a person’s ability to control it. “They wonder whether, if the person ends up feeling under financial pressure, they will turn to gambling,” he said.

Of course, serious gamblers determined to secure a mortgage could try to hide their activities, for example by using cash or a pre-paid card. “But when it’s a real problem it’s not so easy to hide,” said Deeter. “It might show up as part of a large credit card debt, for example.” Banks will also question how the pre-paid card is being used if large amounts of money are being taken from your current account to top it up.

Kiernan said there were always telltale signs if someone was a serious gambler. Even if they stick to cash gambling, chances are there will always be a shortage of money or frequent borrowings.

Other no-nos

Most mortgage applications are turned down because there is evidence in the bank account of continual financial pressure or mismanagement.

One of the biggest red flags is missed payments — bounced cheques and the referral fees imposed by banks when this happens are easily spotted. “An underwriter will watch out for regularly recurring figures such as €4.44, €6.33 and €12.70, as these correspond to referral fees,” said Deeter. “So if you have €100 in your account, and you spend €120 in Tesco, the bank will authorise the payments but charge a referral fee of €4.44. This means you’ve gone outside the remit of the agreement with your lender. You can tell a lot about a person from their bank account.”

Dwyer said missed payments and referral charges were classed as serious mismanagement of the account, and a bank would take “a dim view” of them. He also advised that applicants avoided being consistently overdrawn, making unusual transfers in or out of the account, or making credit card payments out of the account on a monthly basis to fund day-to-day expenditure.

According to Dowling, a bank is ultimately looking for signs of pressure on the account. “If someone gets paid on the first of the month but by the 20th they are at their overdraft limit, that shows the account is under pressure. A bank would question whether the person is in a position to pay a mortgage if their account was under pressure before their next pay cheque.”

Improving your chances

Even if you avoid the common pitfalls, there are still ways to smarten up your bank account to improve your chances of getting the mortgage you want. First and foremost, you need to ensure that any evidence that will work in your favour shows up on your statement.

Lenders will want to see evidence of your ability to pay a mortgage by, for example, paying an equivalent amount in rent each month. It helps if there is a paper trail showing how the rent is paid.

“Make sure your salary or wages are mandated to the account, and that any rent you are paying can be seen leaving your account,” said Dwyer.

According to Dowling, if you say you pay your landlord in cash, it simply will not be believed. He also said to make sure your account showed you were managing your money and were not left with nothing at the end of the month. “For example, if €2,000 goes in, try to show you have €200 at the end of the month, with no unpaid or referral fees.”

It’s worth taking the time to make your statements look as good as possible. “Particularly with first-time buyers, we say, ‘This is what you need to do with your current account over the next six months, and come back then when it’s tidied up,’” said Dowling. “You’re better off waiting that time than putting an application in immediately and being declined.”

Although anyone has the right to ask why an application was rejected, lenders may not always give a detailed response — although a broker may be able to find out informally why an application failed. There have been some interesting cases with refused applications, such as one in which a series of daily purchases from an off-licence over a long period caused an otherwise solid application to be turned down. In fact, the person was simply buying groceries, but there was no card machine in the grocery section of the shop, so the off-licence machine was used. In that case, the applicant was subsequently successful.

Even if you are refused a mortgage, the advice is to review your statement and approach a different lender. “Banks all have different criteria,” said Deeter.

Broker is a stress buster
Veteran Monaghan footballer Dick Clerkin and his wife Alison are no strangers to the mortgage application process, having arranged two mortgages in the past two years. They got the first loan to buy a house in Trim, Co Meath, in 2013. They subsequently sold the property and relocated home to Monaghan town.

The couple, who have two sons (three-year-old Cailean and one-year-old Daragh), arranged the mortgage through a local broker, Harry Dwyer of Moneycare. Clerkin says this took a lot of the stress out of the process. “He was able to advise us regarding what documentation was needed, the timing of everything, and the correct type of loan to take out,” he says.

The pair were lucky both times in that they were able to get the finance they needed, but they were also careful not to over-extend. “We didn’t take out more than we needed, but didn’t leave ourselves short either,” says Clerkin.

Although they had a positive experience with their mortgages, there was one factor they thought might cause them problems. “I had changed jobs shortly before we applied, and the banks tend to look for long-term secure employment, regardless of how good your prospects might be,” Clerkin said. “That was nearly an issue for us, but thankfully we got over it.” Eithne Dunne