Mortgage repayment capacity check

Caspero

Hi all,

If anyone has studied the 3 affordability checks made by Irish banks and can answer this question on the 'Repayment capacity' check I would be very grateful.


My understanding is that the repayment capacity looks at the stressed mortgage payment vs 'repayment capacity' which includes current mortgage payments and current savings. Basically the bank must ensure that there are enough savings each month in the account to meet mortgage payments if interest rises to the assumed stressed levels.

We can demonstrate the required savings for the loan we want because our current account balance has increased each month by the required amount.

Prior to getting the mortgage I'm considering paying off a car loan with those savings to save on car loan interest payments. If I do that before the mortgage is issued, will the bank still take into account those savings for the repayment capacity check? In other words, if those savings are used to pay down a loan, will they still count towards the repayment capacity check when the bank looks for evidence of repayment capacity?

Needless to say paying down the loan will help with other metrics (e.g. NDI) but it's the repayment capacity impact that I am interested in learning about.

phormium

Repayment capacity is the amount of your income available every month to repay loans so that would include your new mortgage repayment, at stress test amount plus any existing loans.

The amount payable on loan repayments cannot exceed a set proportion of your net monthly income.

At the moment those car loan payments will be factored in when bank is calculating how much income you have to pay for loan repayments each month. Assuming that paying off the car loan will not leave you below the savings amount required as a deposit plus costs of house purchase then I could not see that it would affect anything. If you qualify under the percentage of loan repayments v monthly income and have the required amount of disposable income left for your family size then that is the main thing.

Caspero

phormium wrote: »

Repayment capacity is the amount of your income available every month to repay loans so that would include your new mortgage repayment, at stress test amount plus any existing loans.

The amount payable on loan repayments cannot exceed a set proportion of your net monthly income.

Hi phorium, thanks for your message. I think that is MSR though and not repayment capacity?

I'm getting that from the section on affordability in presentation
https://brokersireland.ie/wp-content/uploads/2018/11/Winter-CPD-Mortgage-Presentation.pdf

My read of it is that what you've said is indeed true for the MSR check, but the repayment capacity check seems to have a requirement to evidence from a build-up of savings over the last 6 months. I'm wondering if paying down the car loan will result in them thinking that we didn't have a build-up of savings in that period (when we did but we're just choosing to use it to pay off the loan).

I'm not worried about the MSR check I know that'll pass easily.

phormium

MSR was not a term we used when I was last in that line of work There was some other abbreviation that I can't remember!

Either way your bank statements will evidence your regular savings and will clearly show a lump sum leaving to pay off the existing loan and then savings starting again which should be even at a higher level as you have no car loan.

Trish56

Yes they will include the monthly car repayment as evidence of repayment capacity once it was paid off in the last 2/3 months - once it is paid off you need to then add the monthly repayment to your monthly savings. You are then showing continuous repayment ability.