Press ahead if you're in the market for a new mortgage
Rates are still too high, but playing the waiting game is unlikely to reap rewards, writes John Cradden
If you're shopping for a new mortgage, whether as a first-time buyer, a trader-upper or a switcher, it's bound to be a little annoying to know that you'll be paying over the odds compared to your counterparts in the rest of Europe - even if you get the best possible deal.
Recent figures from the Central Bank show that a typical new borrower is paying almost €157 a month more for their mortgage compared with the eurozone average.
The average interest rate issued on a new mortgage in August was 3.15pc. Although low for Ireland by historical standards, this compares with an average rate of just 1.77pc across Europe.
The explanations proffered as to why we are forced to pay such sky-high rates range from the reluctance of banks to repossess properties, to the high number of non-performing loans, to AIB and BoI's stranglehold on the market.
The good news for borrowers is that ECB rates look set to stay low well into 2019 thanks to under-performing economies of countries in the eurozone, to which you can add the risk of a British recession if Brexit turns into a no-deal reality. The ECB had signalled September next year as the likely start of rate increases, but the latest data now casts doubt on its plan to start raising rates above its current super-low levels.
More good news may come during 2019 if An Post's much-touted move to enter the mortgage market succeeds.
At the moment, if you are looking for an 80pc mortgage on a property worth €300,000 over 25 years, AIB offers the lowest rate at 2.95pc, followed by KBC at 3.05pc, Ulster Bank at 3.2pc, EBS and Permanent TSB at 3.5pc.
If you are looking at fixed rates, which are a popular choice at the moment, Ulster Bank is doing a two-year fixed rate of 2.3pc, with KBC close behind on 2.55pc. A five-year fixed rate is also available at 2.5pc from Ulster Bank, with KBC - again - closely behind at 2.65pc.
The residential mortgage market is pretty much sown up by five players, led by AIB (including EBS) with a 33pc share, while the Bank of Ireland is close behind at 28pc, according to Central Bank figures. The remainder is more or less split between Permanent TSB, Ulster Bank and KBC.
There is a tier below them of very small players including Finance Ireland, a firm run by ex-Permanent TSB boss Billy Kane that recently bought Pepper Money's mortgage portfolio, and Dilosk, another Irish operation that specialises in loans for buy-to-let borrowers, but which intends to offer owner-occupier mortgages under the ICS brand in the first half of 2019. It bought ICS's mortgage book in 2014.
"Recently we saw Finance Ireland enter the market by taking over Pepper Money's mortgage book, which they're aiming to grow," said Daragh Cassidy of price comparison site Bonkers.ie. "However they've stated that they're not seeking to undercut any of the lowest interest rates currently on offer, but instead will offer rates that are somewhere between the highest and lowest currently available.
"So whether the market really gets shaken up depends on who decides to enter. If it's a big, strong, foreign player then things could change dramatically in the same way things changed when Halifax/Bank of Scotland Ireland made its ill-fated entry into the Irish market in 1999. If it's a smaller player, then maybe not."
But besides the prospect of An Post's entry next year, Credit Unions could emerge as a more attractive proposition.
Some 100 credit unions have been offering mortgages for some time on an ad-hoc basis, but a recent report by the Central Bank was critical of how they were run. However, recent efforts to improve mortgage product offerings has prompted the regulator to propose relaxing its mortgage lending cap on credit unions.
The Irish League of Credit Unions has developed a new standardised home loan product called 'CUHome' that aims to overcome the Central Bank criticisms. The association has partnered with Link ASI, a third-party contractor who will underwrite the service and provide legal services, software and credit assessments, although the final loan decisions will still be made by the local credit union.
In addition, credit unions affiliated to the Credit Union Development Association (CUDA) have access to a new mortgage framework. "Since CUDA launched its mortgage solution, almost €43m in mortgage lending has been processed - over 400 mortgages - and volumes are growing as an increasing number of credit unions sign-up," said Kevin Johnston, CEO of CUDA.
However, while rates may vary, the average rate on the CUHome mortgages will be a variable 4pc, which is considered high compared with other rates in the market.
But for at least some buyers, it's not always about the lowest rate. Cassidy of Bonkers.ie believes that credit union mortgages could shake things up not necessarily by reducing interest rates but by changing the way the mortgage application process works.
"Credit Unions constantly receive some of the highest customer and brand satisfaction scores out of all businesses in the country mainly because people find them approachable, flexible and on their side," he said.
"The same couldn't really be said for the banks. So the credit unions could shake up the mortgage application process to the benefit of everyone by making it easier and less stressful."
There's also the Rebuilding Ireland home loan, a Government-backed product now available through local authorities. Available to first-time buyers with incomes of up to €50,000 for an individual or up to €75,000 for a couple, applicants can borrow up to 90pc of the market value of a new, second-hand or self-built property at fixed rates starting at 2pc or a variable rate of 2.3pc.
There are maximum property value limits, however. You can only buy property up to a value of €320,000 in counties Cork, Dublin, Kildare, Galway, Louth, Meath and Wicklow, and up to €250,000 everywhere else.
But don't put off mortgage shopping in the hope that more lenders enter the market.
"Getting a bank up and running takes time and through no fault of any new entrant, these things often get delayed for a variety of reasons so, in reality, you could be looking at years before everything is in play," said Joey Sheahan of MyMortgages.ie. "During which time a potential mortgage holder or someone looking to make a switch could be securing a home-loan with another lender at a good rate."
"There is competition in the market as it stands and there's a greater degree of choice around interest rates than there was 24 or even 12 months ago. So people have options. For example, borrowers with an LTV of less than 60pc can currently lock in a rate for 10 years at 3.05pc - this rate may not be available next year if the European Central Bank rate increases."
Cassidy adds that if someone waits a year or two for a better rate, they'll still have to pay rent unless they're living at home, which could negate a lot of the savings. "Also, if someone buys now and then finds a new bank with a far cheaper rate enters the market later, there's nothing to stop them from looking to switch to the better rate at that stage."
Accredited price comparison website that includes searchable information on the best mortgage deals.
Website of the Competition and Consumer Protection Commission, which includes price comparisons of the best mortgage deals.
Website of the Irish League of Credit Unions, which is rolling out a new centralised mortgage product for participating credit unions.
Information website on the Rebuilding Ireland Home Loan, available through local authorities.
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