Why switchers are back on Ireland’s mortgage scene

“Average fixed rates have now fallen to around 3.8 per cent, offering potential buyers and switchers much better value,” Mark Coan, founder of Moneysherpa, says. In fact, he adds, these rates are “probably the best we will see for some time”.

Brokers Ireland says about 80,000 mortgage holders are due to roll off fixed rates this year. They will be emerging into a very different and more expensive mortgage landscape; just two years ago the average mortgage interest rate here was just 2.78 per cent, or 2.6 per cent on fixed-rate options, according to Central Bank figures.

Rolling off

For anyone reaching the end of their current fixed term, the impetus to avoid accepting the rollover rate offered by their lender is well founded. These borrowers will be automatically moved on to the default variable rate; at present this could be as high as 4.15 per cent, although some lenders have lower variable rates — Avant Money, for example, offers 3.75 per cent.

On a €300,000 mortgage over a 20-year term, according to Margaret Barrett, managing director of Mortgage Navigators, sticking with a variable rate of 4.15 per cent, which you might get if rolling off a fixed rate, rather than fixing for the next four years with, say, Avant at 3.6 per cent, would cost €10,465 over the four years.

“Nine times out of ten there is money to be saved if you have more than €100,000 left to pay on a mortgage,” she says.

Of course, if variable rates fell in the period, the savings would not be so compelling.

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The switcher market fell by 53 per cent in the first quarter alone. Now that lenders have dropped rates a bit, though, further deferring a switch is unlikely to be the best course of action, says Barrett, who reckons the new lower rates will be in situ for at least six to nine months.

Many of those coming off fixed rates this year may decide to wait it out a bit longer — even on a more expensive variable rate — before tying themselves into another fixed mortgage. There is certainly an argument for this; the European Central Bank is expected to slash rates over the summer and, while the banks may not pass these cuts on straight away to non-tracker holders, they should trickle down in time.

It’s unlikely that rates will slide down to 2.6 per cent, however.

What to do

For anyone due to come off a fixed rate this year, your lender is obliged to give you 60 days’ notice. However, experts say not to wait for this but to start looking at your alternatives in advance.

If your best option is to change lenders, you effectively have to apply all over again for your mortgage — which could easily take longer than two months. So go to your lender early and ask what date your fixed term ends, how much the balance is, what variable rate you will automatically go on to, and what fixed alternatives are on offer.

Contact rival lenders or speak to a broker to learn what else is out there. Chances are that you are still going to face higher repayments; your aim is simply to ensure they are no bigger than they have to be.

First-time buyers

Due to supply issues, first-time buyers don’t have the luxury of waiting around in the hope of seeing rates fall. “The inflation in property prices is outpacing any rate reductions and so, when a first-time buyer gets mortgage approval, they go sale agreed as soon as they find a suitable property. The interest rate is almost secondary to that, unfortunately,” Barrett says.

According to Coan, first-time buyers waiting for something better to come down the tracks in terms of interest rates may not see much further in the way of fixed-rate drops, while at the same time house prices are expected to rise by a further 4 per cent this year.

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“Even if fixed rates fell by a further 0.5 percentage points, the expected rise in prices would more than wipe that mortgage saving out for a typical buyer,” he notes.

Green mortgages

You will almost certainly do better on rates if your home has a higher building energy rating (BER), either because it was a new-build or you have invested in its energy efficiency. “The banks most people have their mortgages with, Bank of Ireland and AIB, reserve their best rates for the 20 per cent of homeowners with A or B certs,” Coan says.

The best green rate on offer, for homes with a BER of B3 or above, is Haven’s four-year fixed of 3.45 per cent. This may also suit first-time buyers as it does not require a lower LTV ratio, unlike some rival green rates. For example, you can get the same rate on a green five-year fixed deal from AIB but only if your LTV is 50 per cent or less; otherwise you are looking at 3.55 per cent, or 3.65 per cent on an LTV over 80 per cent.

Bank of Ireland recently launched its Ecosaver rates; rather than having a distinct BER cut-off point for a single green rate, these offer sliding-scale discounts off its normal rates depending on the energy rating.

They still don’t necessarily amount to the best deal, though; with a high-value mortgage over €250,000 on an A-rated home, you can get 3.6 per cent on its four-year fixed rate. But for under this amount, on a B-rated home, the best rate is 4.35 per cent for a one or two-year fixed term.

Avant Money offers among the better mortgage deals on the market — regardless of BER. “The majority of people rolling off fixed rates will not have a minimum B rating and the lowest rate for anything below a B3 is Avant’s 3.6 per cent,” Barrett says.

This rate is available to those with an LTV of 80 per cent or less. According to Coan, someone with an outstanding mortgage of €130,000 could save more than €3,500 by switching to Avant Money. “If you have a larger mortgage, you will, of course, save even more,” he adds.

You may also be able to get a better rate if you have a lower LTV on your home; this can come about because your home has risen in value or you have paid down a chunk of the debt.

Cashback

Lenders may offer cash incentives to help with the cost of switching. While practically all lenders have some form of cash incentive, most are choosy about who may receive it — for example, some lenders give cashback only to switchers, others only to those on higher rates, and so on. Either way, make sure you prioritise your overall cost of credit over any cashback offer.

Bank of Ireland, for example, pays up to 3 per cent on some of its lower-value, ie sub-€250,000, mortgages but nothing on its higher-value mortgages, which get the best rates. EBS also offers 3 per cent cashback depending on which mortgage you take out. In both cases you get 2 per cent upfront and the rest five years later.

PTSB pays 2 per cent on drawdown on some of its mortgages, while for those using its current account it also pays 2 per cent back on each monthly repayment until 2030.

Haven pays €5,000 to new borrowers on some of its fixed-rate mortgages, excluding its green offering, if the amount is more than €250,000; switchers may be eligible for €3,000, up from €2,000 as of May 27. AIB, meanwhile, will pay €3,000 to switchers, while Avant is offering 1 per cent to the same cohort until November; neither gives an incentive to new borrowers.