Saturday 10 December 2016

Mortgage switching: Should I switch?

Published 11/07/2015 | 02:30

Before switching ask your lender for a lower variable rate. Banks are sometimes, though not always, prepared to give existing customers a lower rate to retain their business
Before switching ask your lender for a lower variable rate. Banks are sometimes, though not always, prepared to give existing customers a lower rate to retain their business

Will variable rates come down again?

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It's not possible to be definitive about this as there are too may uncertainties, according to Brendan Burgess of the Askaboutmoney.com website. Whether rates are cut comes down to the behaviour of the banks. Another key factor is the willingness of Finance Minister Michael Noonan to force the banks to charge fairer variable rates. Also at play is the willingness of the Central Bank to protect consumers.

Mr Burgess, who co-ordinates the Fair Mortgage Rates Campaign, added the success or otherwise of consumer lobbying on the issue will also be key. "These factors should push down variable and fixed rates, but we don't know by how much and when they might come into effect. It might take a change of government and a change of Central Bank governor to effect these changes," he said.

I can't switch lenders, should I fix?

Assuming there are no decreases in variables, then whether you fix depends on which lender you are with. For those with AIB there is little difference between its variable rate and its one-year fixed. The variable at 3.9pc is the lowest in the market. The one-year fixed is only slightly higher at 3.5pc. With Bank of Ireland, there is a big difference between its variable rate of 4.5pc and its two-year fixed rate of 3.75pc.

"This means it is probably correct to fix," Mr Burgess said.

There will be a saving of €60 a month for every €100,000 borrowed by opting for the fix with Bank of Ireland. Customers with Ulster Bank have been offered lower fixed rates if their mortgage is less than 80pc of the value of the property - in other words they have built up equity of at least 20pc. The bank does not allow those with a loan-to-value of less than 80pc to fix, Mr Burgess said.

Permanent TSB does not allow existing customers to fix, but it has introduced what it calls managed loan-to-value rates which are lower than the variable rate. For those with little or no equity in their home the best you will get is 0.2pc knocked off your loan by moving to what it still essentially a variable rate, but with different pricing for those with low loan to value.

With KBC, the difference between the variable rate of 4.3pc and the two-year fixed rate of 3.9pc would not justify fixing now.

Should I switch lender?

Before switching ask your lender for a lower variable rate. Banks are sometimes, though not always, prepared to give existing customers a lower rate to retain their business. Finance Minister Michael Noonan has encouraged people to switch, and if enough do that it will put downward pressure on variable rates. If you have a low loan to value, and your income is sufficient to support your mortgage repayments with some leeway, and you have a good credit record, then you should be able to switch. Forget switching if you are in arrears or in negative equity.

It works best for those with big mortgages, and whether you do depends on how much you can knock off the rate you are on.

Switching is not free, but most banks will pay for your conveyancing costs.

Ulster Bank will give you up to a €1,500 contribution towards your legal fees. Take a family with a €250,000 mortgage, with 24 years left to pay. The family is on a 4.5pc variable rate.

Moving to a bank with a rate of 3.8pc would mean savings of €92 a month. Over the 24 years left on the mortgage, there would be a saving of close to €27,000, assuming rates stay the same.

Irish Independent

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