It's time to negotiate on your mortgage
Whether you're a first-time buyer, a mover or a switcher, increased competition means rates are likely to fall this year. John Cradden looks at the best deals on the market
Whether you're a first-time buyer, a home mover or a switcher, this could be a good year to negotiate a cheaper or better mortgage deal.
Although there has been a bit of a slow-down in the mortgage market over the past while, banks have been responding to increased competition in the mortgage market by adding more 'sweeteners' or greater flexibility, but a drop in rates could soon be on the way, too.
Furthermore, there is good news for the self-employed and those who cannot get a mortgage from the mainstream banks.
Last month saw the official launch of a new mortgage lender here in the form of Australian firm Pepper, who will be lending to the self-employed and those who got into arrears during the downturn but are now back on track.
"Up to now, if you had credit issues you were virtually unbankable, that is set to change," said Karl Deeter of Irish Mortgage Brokers. "Equally, as banks add bells and whistles to their product suite, you'll see some will be about flexibility rather than price and that's a sign of competition in product differentiation coming through."
He adds that rates will improve with the new competition. "This was what happened in the last credit cycle and will happen again so time will take care of that, but Ireland also has unusually high risk associated with our loans so that has to be factored in."
Best rates for FTBs
Using the example of a house worth €240,000 with a mortgage of €216,000 - which equates to a 90pc Loan-to-Value (LTV) ratio - the variable rates range from 3.7pc APR with EBS to 4.5pc APR with Bank of Ireland, according to the Competition and Consumer Protection Commission's price comparison website Consumerhelp.ie.
If you have or open a current account with KBC, you would get a 0.2pc discount to bring its rate down to 3.65pc APR.
Haven, a broker division of AIB, offers 3.75pc APR (same as AIB), but because this is a broker-only deal, make sure you understand the full cost of fees in advance.
What about fixed rates? Ulster Bank is offering a seven-year fixed rate for 3.99pc (3.75pc if the LTV is lower than 80pc). This is surely a good idea given that rates are so low at the moment?
"Yes, they are attractive but make sure it's the best one you can get," said Ken Murray of the Association of Expert Mortgage Advisors. "While it's a low-interest rate environment, the expectation is that there's not much scope for rates to increase and there is still a possibility of further decreases, particularly given political pressure on lending institutions to reduce SVRs."
Best rates for switchers and home movers
For switchers with a house worth €400,000 with an outstanding mortgage of €250,000 over 15 years at 4.5pc, paying around €1,900 a month, they could save around €20k over the remainder of the mortgage by switching to a cheaper lender offering variable rates of around 3.5pc given their LTV of around 60pc.
"It depends on the institution but the lower the LTV, the better your rate is going to be, without a doubt," said Murray.
"You could have a standard variable rate of 4.5pc on an 80pc LTV, but that could get down to 3.25pc for less than 60pc LTV." Variable rates for a home mover buying a property worth €450,000 on a mortgage of €350,000 over 20 years range from between 3.35pc with Ulster Bank to 4.2pc with Bank of Ireland. Ulster Bank also offers the cheapest three-year fixed rate at 3.2pc on loans of up to 80pc LTV.
Murray adds that he would like to see lenders introduce a type of mixed fixed/variable rate product that could give you "the best of both worlds".
Speaking of incentives, Murray welcomes Permanent TSB's new 3in1 mortgage product, which offers greater flexibility with overpayments, payment holidays and monthly payment date options.
"If people want to save for Christmas, it gives them the option to take a payment holiday in December, and spread out the payments over the following 11 months," he said. There is also flexibility in calling back lump sums they may have recently overpaid into the mortgage. The cashback offers are another popular incentive, with Bank of Ireland, Permanent TSB and Ulster Bank offering either 2pc cashback or fixed sums.
Deeter describes these offers as like "a cheap cologne" in that the strong waft gets people's attention, but what people don't often realise is that you may end up with a higher mortgage rate.
"The difference in your loan remaining if going for a fixed-rate versus the cheaper rate can be a big sum, so people need to do the maths correctly and not rely on a simple thing like 'multiply the monthly difference and take it away from the cash to see if it makes sense', because that calculation is wrong."
For instance, if you have a 20pc deposit and want to borrow €200,000 at a rate of 4pc, you could pay nearly €144,000 in interest over 30 years. If you were on a cheaper rate of 3.55pc, you could pay just over €125,000, or around €18,000 less, meaning that a 2pc cashback offer of €4,000 would still leave a difference of €14,000.
Get approval before you start looking
Before you start looking in earnest, you'll need to get 'approval in principle' so that you know how much you can borrow.
Under current Central Bank rules, first-time buyers are obliged to come up with 10pc of the value of the house up to the first €220,000, which means a 90pc LTV. If the house is worth more than €220,000, then they will need to raise 20pc of any amount in excess of that. Second-time buyers will need to have a 20pc deposit for any new mortgage they take out.
You can apply directly to lenders or through a broker who can do it on your behalf and also shop around for the best rates.
It's always a good idea to get everything you need in terms of paperwork to start the application process. "Having the necessary information from the very start gives customers a clear picture of what they need to do to complete the process and avoid unnecessary delays," said a spokeswoman for Permanent TSB.
As a first step you'll need proof of your ID (eg, passport or driving licence) and address (household bill in your name), your income (P60 and three recent salary slips) and evidence of how you manage your money (usually current account and loan account statements for the last 12 months).
Being well organised means you can apply to a number of lenders, allowing you to do a better comparison of the rates on offer.