Are the banks offering better home-loan deals to customers?
As the property market stabilises and lending activity recovers, are banks offering better home-loan deals to customers, asks John Cradden
The mortgage market in Ireland has been showing signs of revival over the last couple of years as the property market stabilises and more buyers climb out of negative equity, but are there any signs that the products themselves are fresher or more attractive?
Frank Conway of Irish Mortgage Review concedes that the general market is getting "a little bit more competitive", but is keen to put this recovery into some perspective.
"Even if lending activity and the number of units drawn down rose 50pc over the 2014 levels, when 20,000 mortgages were granted for a property purchase, this would still be equal to 1987 levels.
"So yes, lending activity is recovering but we have to remember that lending did drop 90pc from peak levels of 2006 and the drop was one of historic proportions."
A sign that lenders are cranking up their mortgage offerings is the number of sweeteners being added, such as offers to pay between €1-2k off any legal fees associated with buying new homes or switching mortgages (Permanent TSB, Ulster Bank and KBC), discounts on home insurance (KBC) and even 2pc cashback (Bank of Ireland).
AIB recently announced that it would offer unconditional fee-free banking for new and existing mortgage customers.
"The best deal is the one with the best APR," said Mr Conway. "Everything else is pretty much a sweetener to get you in the door."
With a cheaper rate, "you'll make the money back in the long run to more than pay for the solicitor or the cashback", he added.
Whether you are a first-time buyer, switching or trading up, the biggest factor that will determine your interest rate will be the LTV (loan-to-value) ratio.
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.
Using the example of a house worth €240,000 with a mortgage of €216,000 (which equates to a 90pc 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 "since this is only available via brokers and many brokers charge an application fee, you need to understand the full cost of fees in advance if you are to go the Haven route," said Mr Conway.
For switchers and home movers, the LTV ratio must be 80pc or less.
"The 80pc LTV threshold is a particularly important one," says Ken Murray of the Irish Association of Mortgage Experts.
"Anything under 80pc will see banks slash the interest they charge significantly."
The focus on LTVs can also been seen in Permanent TSB's recently announced decision to offer more than 70,000 of its customers the opportunity to move from their standard variable rate to a new 'managed variable rate' (MVR).
The new interest rate being offered to customers depends on their LTV, but basically, the less that is owed as a percentage of the home value, the better the interest rate the bank will offer. Customers with a LTV of 50pc or less will be offered a rate of 3.7pc, rising to 4.3pc for LTVs of 90pc or more.
Indeed, the 50pc-or-lower LTV threshold is another popular one for Irish banks. The variable rates for a switcher or home mover with a mortgage of €200,000 over the next 15 years on a house worth €400,000, range from 3.35pc APR (AIB) to 3.9pc APR (BoI).
For the first-time buyer with a 90pc LTV, one-year fixed rates range from 3.5pc APR to 4.2pc APR, while five-year fixed rates range from 3.8 to 4.9pc.
Only Ulster Bank and Bank of Ireland offer fixed rates of more than five years, although they will be a little more expensive at 3.99pc for Ulster Bank's seven-year fixed and 4.4pc for BoI's 10-year fixed.
"Lenders take a much too hard-line approach when it comes to fixed mortgage products," said Ken Murray of the Irish Association of Mortgage Experts, with most lenders applying penalties for breaking out of a fixed rate early.
"In other successful mortgage markets, lenders are much more accommodating in terms of meeting the changing needs of mortgage holders as they move along their life-cycle.
"For example, many lenders in the US allow borrowers to break out of a fixed-term contract with no penalty for doing so."