Why a fixed rate mortgage won't suit everyone
As the Financial Regulator predicts a rise in mortgage rates, many homeowners are rushing to switch to a fixed rate. But this may not make the best economic sense, writes Charlie Weston
Published 20/04/2010 | 05:00
THOUSANDS of homeowners are desperately trying to lock in to fixed-rate mortgages as home-loan rates have started to surge in the past few months.
So far Permanent TSB, AIB, Bank of Ireland/ICS, EBS/Haven and KBC Homeloans have increased their standard variable for new and existing customers, with most of these lenders also hiking fixed rates.
Financial regulator Matthew Elderfield warned last week that more crippling mortgage rate rises are on the way for hard-pressed mortgage holders.
The regulator told an Oireachtas committee higher mortgage rates were an "unfortunate but inevitable consequence" of the banking crisis.
But is it always a good idea to fix? And some homeowners are finding that it is not even possible to fix.
A survey by the Irish Mortgage Corporation found that almost a third of adults are struggling to pay bills.
And the survey found that nearly a half of homeowners fear they will struggle to pay their mortgage this year if rates rise as expected.
Monthly repayments rising by more than €250 would pose a problem for mortgage holders, the survey found.
But some of those seeking to lock in to fixed rates are finding they are being blocked from fixing, being offered very uncompetitive rates, or kept in the dark by their lender on what fixed rates are available for existing customers.
Mortgage adviser Frances O'Hanlon of FOH Mortgages & Investments in Clonmel, Co Tipperary, said homeowners were panicking about rate rises and were rushing to sign up for fixed rates.
But she warned that it did not always make sense to fix, especially if your lender only offering a very high fixed rate.
The virtual closure of the switcher market meant that homeowners were at the mercy of the mortgage lenders and are forced to accept whatever fixed rate their bank offers, especially if they are in negative equity.
"People should tread carefully, By panicking now people could end up entering in to something that will cost them dearly in the long run," Ms O'Hanlon said.
This was especially the case with the fixed rates on offer from Permanent TSB and Bank of Scotland (Ireland) for existing customers, Ms O'Hanlon said.
"People need to ask themselves: what are you buying into and what will it cost you? You could end up paying an extra 3pc, so you need to clear about what it is costing you."
She advised people to grab a fixed rate if it is in or around 4pc, but rates of more than 4.5pc or 5pc were hardly worth considering.
One lender that is making it difficult for those who want to fix is building society EBS. It has been accused of treating members unfairly after it emerged that it won't publish a list of fixed rates for existing customers.
The society admitted that each application from existing customers who want to lock in to a fixed rate was assessed on a case-by-case basis.
Michael Dowling of the Independent Mortgage Advisers Federation said he dealt with an EBS customer recently who was offered a rate of 4.75pc to fix for three years, but when Mr Dowling rang the society on the client's behalf he was offered 4.25pc.
National Irish Bank has defended its policy of refusing to allow its customers who are in negative equity to qualify for a fixed rate. This is because the bank only offers fixed rates for those whose loan represents 80pc or less than the value of the home.
A spokesman for the bank admitted that those customers on a standard variable rate, who are in negative equity, would not be able to fix their mortgage.
Homeowners who want to fix are also finding that they are being offered much higher rates than brand new customers of the lender, in an apparent snub to customer loyalty.
Among the lenders punishing existing customers with higher rates than new customers are Permanent TSB, EBS/Haven, KBC Homeloans and Bank of Ireland.
- For tips on whether or not you should fix see the National Consumer Agency's financial website, www.itsyourmoney.ie, and search for the word "fix".