Planning to buy a house? Here's how to get the cheapest mortgage
Published 16/05/2016 | 13:18
In an expected move, AIB will, for the fourth time in 18 months, drop its variable mortgage rate from July 1. Curiously, sister banks EBS and Haven haven't followed suit.
However, KBC, ever aggressive, was quickly out of the traps last week with its own offer, undercutting its rival, but only for new customers - existing ones get new fixed rates.
All have incentives and offers to get customers in the door, from paying your legal fees to discount insurance.
What it all means is that banks want new business. They see cranes are sprouting up (albeit not in great numbers), and rising prices put property front and centre. But don't be fooled. Irish customers still pay almost twice the interest rate on mortgages as other Europeans.
The banks are borrowing the money for free, and passing it along at 3.3 to 4.5pc, trousering the profit. The average mortgage interest rate in Spain, for instance, is 1.68pc.
This week, I'm looking at the different types of mortgages on offer, from the first time buyer to those unfortunate enough to be in negative equity. What are the criteria, and how hard is it to get that loan?
Know your Loan To Value (LTV). This is the difference between the value of your house (not always easy to determine) and the mortgage on it. A house worth €300,000 with a mortgage of €230,000 has an LTV of 76pc. The lower this figure, the better interest rate you'll get. Banks may charge for a valuation.
You'll be asked to prove earnings and provide bank statements for at least six months. Preparing these to look as attractive as possible is vital. Don't tip into overdraft; use your debit card and show a clear pathway for outgoings.
Using a mortgage broker will cost around €500, but it is money well spent given such a big financial undertaking. They'll do all the paperwork and know the best banks to do deals with.
Your deposit needs to be clearly shown. Banks don't like other loans providing it, or parents. They like to see clear, long-term savings.
Consider variable and fixed rates. The ECB shows no sign of increasing interest rates, and banks build this into fixed offers, preferring to shore up customers for one, three or five years. They are attractive, but you are tying into a contract.
FTBs only need to find a 10pc deposit up to a house value of €220,000. This is very difficult in Dublin, and 20pc over this figure is needed. For the average house price of €349,000, that means coming up with €46,200 - a significant amount. The Central Bank has been asked to look at this, but is standing firm. It is the main reason house prices in commuter counties are on the rise again - 70pc of starter homes outside Dublin are sold for under €220,000.
Moving up requires a deposit or equity of 20pc. So, getting your LTV is vital before approaching your bank. Trading up is an ideal time to consider switching bank - many offer incentives, such as Bank of Ireland's 2pc cash back offer (which PTSB also has). The former has higher interest rates, however. AIB offers free current account banking for switchers while KBC and Ulster offer money towards legal fees.
Loans are possible if your LTV is over 100pc. However, they are difficult to secure. If you are in a small apartment with a growing family but your mortgage is higher than the property's value, it is possible to get a bigger one, but the requirements are quite stringent; however, you only need a 10pc deposit to secure one.
Here's how they work:
Current house value, €180,000. Current mortgage, €245,000. Negative equity, €65,000 (or 136pc).
You find a new house priced at €350,000, putting up a 10pc deposit (€35,000) and making your new mortgage €315,000, plus the carried negative equity of €65,000. This brings the total loan to €380,000, making the new LTV ratio just 109pc.
Most banks limit the overall LTV (see table) and possibly the mortgage term and amount too. If you are coming off a tracker mortgage they may or may not let you keep it, sometimes with added interest, so cost the new repayments fully. All other requirements are the same.
The table shows current interest rates for new business, based on a €200,000 mortgage over 30 years with an 80pc LTV, along with negative equity mortgages.