Tuesday 25 November 2014

Keen to move home? Don't forget to bring the tracker mortgage

Published 06/04/2014 | 02:30

Nama and the Government have fought to keep property prices artificially high
Nama and the Government have fought to keep property prices artificially high

IF you've been itching to move house, and the only thing holding you back is your fear of losing your cheap tracker mortgage, you shouldn't have to wait much longer before you can move and take your tracker with you – if you have to wait at all.

Last week, KBC Bank became the latest bank to start offering tracker-mover mortgages – where you can move house and carry your tracker mortgage over to your new home loan.

AIB and EBS will follow suit this summer, and Permanent TSB will fully launch its tracker-mover mortgage in early May. Bank of Ireland and Ulster Bank already offer tracker-movers.

Like all loans, it's important to understand what you're getting into before snapping up a tracker-mover.

* Who offers the best deal?

You can't shop around lenders for tracker-movers – you are tied to the lender you have your existing tracker mortgage with.

As AIB, EBS and Permanent TSB allow you to carry over your tracker mortgage until your tracker is repaid, these lenders offer the best movable trackers.

KBC also allows you to carry over your tracker mortgage for the rest of your tracker mortgage term – however, the additional interest it charges on your tracker rate is higher than the other three lenders.

Under its tracker-movers, AIB, EBS and Permanent TSB charge an additional 1 per cent interest on top of your tracker rate. KBC charges an additional 1.25 per cent interest – which makes its tracker-mover deal one of the most expensive out there.

BoI and Ulster Bank's tracker-mover mortgages come with a major drawback – they only allow you to keep your tracker for five years and after that you'll be hit with the lenders' standard mortgage interest rates. Your mortgage is therefore likely to be a lot more expensive after five years.

Bank of Ireland charges an additional 1 per cent on top of your tracker rate – until the five-year cut-off point.

The additional interest you pay on top of your tracker with Ulster Bank depends on the tracker rate you have and how much of the value of your home you are borrowing.

If borrowing up to 90 per cent of the value of your new home, you'll pay extra interest of between 0.5 and 1.25 per cent – again, until the five-year cut-off.

Regardless of your lender, if you are borrowing any money in addition to the tracker mortgage you are carrying over, the interest you pay on the balance will be at your bank's more expensive current lending rates.

* Can I get a tracker mover if I'm in negative equity?

Yes. If you're in negative equity, you can usually carry over your existing tracker mortgage – as long as you're selling your existing home and buying a new one.

Lenders limit the loan-to-value ratio (LTV: the percentage of the price of the new property that you are borrowing) of your new mortgage. This ltv includes the negative equity that is being carried over to the new property.

With Ulster Bank, the maximum ltv is 200 per cent; with AIB and BoI, it's 175 per cent; with KBC and Permo, it's 125 per cent if trading up. If you're in negative equity and want to trade down rather than up with Permo or KBC, the maximum ltv is 175 per cent.

If you're building your own home, the maximum ltv could be lower than that typically offered by your lender. With Bank of Ireland, for example, you can borrow up to 125 per cent if it is a self-build.

Think twice before signing up to a mortgage with a high ltv. It's not that long since banks were lambasted for offering the 100 per cent mortgages that exacerbated the problems of homeowners who fell into negative equity.

Taking on a mortgage that is twice – or almost twice – the value of the property you are buying is not a good idea. Carrying over the negative equity on your existing home to another loan means that you're crystallising the losses on your home and so you ultimately will have to bear the brunt of any negative equity that has built up in it. It could make more sense to move – and rent out your home until house prices recover more.

* Must I sell my home before applying for a tracker mover?

No – you usually apply for your mortgage before selling your home. Once you sell your home and repay the existing mortgage on it, you typically have a certain amount of time to find the new home you wish to buy. With BoI, for example, you have six months.

* Who doesn't qualify for tracker movers?

If you're in mortgage arrears or restructured your mortgage recently to resolve an arrears problem, you're unlikely to qualify. If you haven't been in a steady job for at least a year, you could also run into trouble getting a new mortgage. You cannot carry over buy-to-let trackers. Similarly, you can only take one when moving to a property that will be your main home.

* Who doesn't offer tracker movers?

If you have a mortgage with Bank of Scotland, Danske Bank or Irish Nationwide, your chance of getting a tracker-mover are slim. Bank of Scotland and Danske Bank are not planning to launch tracker-mover mortgages or to hook up with another lender who offers them.

A spokesman for IBRC, which is in liquidation and is handling the mortgage book of Irish Nationwide, would not say if Nationwide borrowers had a chance of getting a tracker-mover mortgage. Last week, more than half of a portfolio of mortgages being sold by IBRC's liquidators were bought by two US funds – Lone Star and Oaktree Capital.

* I'm currently sale agreed on a property, but my bank has not yet launched its tracker mover. Could I still get it?

If the sale goes ahead before your lender launches its tracker-mover deal, it's unlikely you'll get its tracker-mover mortgage.

If the sale goes ahead after your bank launches its tracker-mover, you might be able to cancel your existing mortgage application and apply for the tracker mortgage. It depends on your lender.

The golden rules of taking out life cover

Greg Dyer

IN my experience, life cover is something that people with families quite naturally don't like to spend much, if any, time thinking about. That's understandable. Who wants to allocate much of their day contemplating their own mortality?

Despite this, those of us with a family will accept that it's necessary to have plans in place to cover the financial implications of the death or serious illness of the family breadwinner.

However, people often underestimate the amount of life cover they need to provide for their family.

Let's take the example of a family who need income of €3,000 a month to meet all their ongoing bills. If you tell them that a life cover payout of €200,000 will only last just under six years, they can often be surprised.

Another interesting anomaly I've noticed over the years is that women over the age of 44 insure themselves for less life cover than men. Women have less than half the amount of life cover in place than men of the same age. What is more worrying is those that have no cover in place at all – often because they think it's unaffordable for them.

If you want to address the gap in (or non-existence of) your life cover, here are three golden rules to follow.

* Don't confuse cover with age

Many people believe that the level of life cover should increase with age. However, the opposite is often true.

Over the years, I have noticed that people often have their highest level of life cover in place later in their life. On first analysis, this would make sense, as they may have more readily available disposable income to spend on life cover.

However, if people give it some consideration, it's clear that a couple in their 30s with a young family have greater expenses and dependencies and therefore a more pressing need for sufficient life cover than a couple approaching retirement with adult children who are no longer dependent upon them.

* Don't forget the stay-at-home mums and dads

Although they work very hard in the home, stay-at-home mums and dads often believe that because there is normally no direct income paid for the jobs they carry out, they therefore don't need life cover. However, this is really not the case. Too few are aware of the monetary value of the work carried out by the person who stays at home to mind the children and, to use the old vernacular, "keep the house", such as cleaning, cooking and so on.

Although it may be an unpleasant thought, in the event of a stay-at-home parent's death or serious illness, significant and often unaffordable costs would be incurred to employ someone to do the typical household jobs.

Those people, through choice or necessity, who stay home to look after their children almost always undervalue the economic worth of the very important and valuable job they do.

* It comes in all rates and sizes

There are thousands of euro worth of savings up for grabs for those consumers who are willing to shop around.

In fact, many companies have special offers available now, which offer additional price discounts. In particular, it pays to shop around for your mortgage protection life cover.

Remember, you are under no obligation to buy the mortgage protection cover offered by your lender.

Greg Dyer is director of Caledonian Life

I have a pension, but should I start up an AVC, too?

Q I am a civil servant earning a comfortable pensionable salary. I am 61 years old and due to retire in a few years. I pay tax at the higher income tax rate of 41 per cent. I currently contribute 6.5 per cent of my salary to my pension scheme. Should I consider AVCs?

Peter, Fairview, Dublin 3

A AAVCs (Additional Voluntary Contributions) are extra savings you can make towards your pension. So yes, it is a good idea to pay money into them.

Doing AVCs will enhance your final tax-free lump sum, provide you with additional retirement income, and allow you to benefit more from the pension tax relief available to you.

Someone of your age can contribute up to 40 per cent of their salary to a pension – and get full tax relief on those contributions. As you are already paying 6.5 per cent of your salary into a pension, you can contribute another 33.5 per cent of it to AVCs. As you are a higher rate taxpayer, you can get 41 per cent tax relief on those contributions.

You can use the AVC to maximise the tax-free lump sum you are entitled to on retirement.

If you have any money left over in your AVCs after doing that, you can transfer it to an ARF (Approved Retirement Fund – a personal retirement fund where you can keep your money invested after you retire). You can then draw down 5 per cent of the money in the ARF annually to supplement your pension.

If you die, the ARF transfers to your spouse or family, and if you invest the ARF in low-risk funds, you may have income for 20 years.

Q With deposit rates so low, my bank is recommending that I invest in a managed fund. I do not need access to the money and am a low-risk investor. Should I consider this option?

Michelle, Douglas, Co Cork

A The main benefit of your deposit account is short-term access. However the main disadvantage of it is low returns because of low interest rates, a higher DIRT tax rate of 41 per cent and the effects of inflation.

Investing in a managed fund should offer you diversification by enabling you to invest in a broad range of assets (such as equities, property, bonds and cash) or markets with the longer term goal of obtaining higher returns than those available on deposit.

When investing in a managed fund, there are a number of factors that you'd first need to consider.

You need to be comfortable with the level of risk you want to take. Your bank will ask you to complete a risk profile questionnaire. This will help you to understand the level of risk you are prepared to take.

You should consider investing for a period of at least five years to give your money a chance to grow. There may be penalties if you want to exit a managed fund in the first few years so know where you stand here.

A good rule of thumb before investing in a managed fund is to set aside six months income in a deposit account in case you need money in an emergency.

In the same way that you may compare the deposit rate of your bank with those of other financial institutions, you should also seek independent advice on your choice of managed fund – and shop around. The managed fund recommended by your bank may not offer the best value out there.

John Fagan is principal partner of the Dublin taxation and financial advisers, Fagan & Partners

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