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Saturday 20 July 2019

Getting a home loan is the easy bit...finding a house to buy is the challenge

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Sinead Ryan

Sinead Ryan

There's no doubt mortgages are going to be the financial talking point of 2019.

Loan approvals were up 4.5pc last year to more than 45,000 while €10bn was loaned, up 3.3pc.

For the first time in a long time, getting a home loan is the easy bit. Finding a house to buy is the challenge.

Still, building programmes are ramping up, though not fast enough and not in the right places, and struggling first-time buyers (FTB) are having to renew their already approved mortgage applications more than once.

When you apply for a home loan, you're given Approval in Principle by a lender; however, this can only last around six months, and if you don't buy within that time you have to renew your application.

That's fine if nothing has changed, but should you have moved jobs, lost hours or missed payments on a loan, the whole process gets re-examined, leading to further delays.

FTBs make up more than half of all activity, in no small part due to the huge supports given by the State and banks to help them get on the property ladder. This week I'm looking at what's moving in 2019. If you are, here's how to get started.

The panel shows some interest rates available for new buyers.

House Prices

Dublin has finally seen prices stabilising. According to the latest MyHome.ie figures, the average three-bed semi is selling for €315,000, though it's much higher in the south of the county.

Commuter-villes such as Meath, Kildare and Wicklow are also flat-lining.

Fixed and Variable Rates

Fixed rates are by far the most popular type of loan.

Borrowers like security, and lenders like locking them in for a few years. Most now offer more competitive rates for three years than they do on variable.

Bank of Ireland's ordinary variable rate is a high 4.2pc, but if you fix for three years you'll get 3pc. PTSB offers 4pc on variable, but only 2.8pc on a fix for three years, both assuming 80pc loan to value.

If you have equity (that is you don't need the fully 90pc loan-to-value) you can get even better rates.

Cash-Back and Other Gimmicks

Borrowers can be tempted by cash-back offers that often mask higher interest rates over the term, but there's no doubt they're working - for the banks.

PTSB gives 2pc cash-back, while Bank of Ireland and now EBS offer an additional 1pc if you stay with them for five years. Other banks offer to pay legal fees, insurance or a rate discount if you move your current account.

There's nothing wrong with this, but it's always worth checking what rate would be available elsewhere without the gimmicks.

A good mortgage broker will sift through the glossy ads for you.

Interest Rate Rise

We already pay double what other Europeans do for mortgages - 3.06pc versus 1.77pc. It's an additional €215 a month on a €200,000 mortgage.

Rates are due to rise this year as the European Central Bank's Quantitative Easing programme has ended, but it's unlikely anything will happen before Brexit is sorted, and will be incremental in any event.

Switching

The Central Bank has changed the code of practice and is forcing banks to tell customers if they could get a better mortgage interest rate than the one they're on.

This will only apply within their own bank, but it's a start, especially if house prices continue to rise.

The very best way of securing a lower interest rate is to have better equity in your home. Some banks, like PTSB, are even prepared to pay for a valuer to come out and assess it for you.

New Lenders

At least three new lenders will enter the market this year, providing much-needed competition to the banks.

First, credit unions are being enabled to offer mortgages. Some already do this, generally the 'specialist' ones such as the Garda CU, but their collective capacity to lend is huge and untapped.

New legislation will be put in place to open up this market. Rates won't be the cheapest, but many like dealing with their local branch.

Meanwhile, broker-led Finance Ireland will be offering new loans (they already manage Pepper's loan book) and An Post will do so once it secures a banking partner to offer home loans.

If you're a prospective borrower, watch this space.

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