Could you save on your mortgage with the lender from Down Under?
The first new mortgage lender to hit the Irish market in almost 16 years opens for business tomorrow - however, you could pay about €8,000 more for your mortgage than you need to by taking out your home loan with it.
The Australian lender Pepper will offer mortgages to a range of borrowers, including first-time buyers, those trading up, investors, and people who often struggle to secure a mortgage from other lenders, such as the self-employed - and those who have fallen behind on mortgage repayments.
Although some lenders work out cheaper than Pepper for home loans, others are charging almost €12,200 more, according to an analysis by the Sunday Independent.
So who will save money by taking up a mortgage with Pepper - and who won't?
First-time buyers: up to €8,000 more at Pepper
The best interest rate which Pepper will offer to a first-time buyer borrowing almost 90pc of the value of a home is 4pc. This means Pepper is almost as expensive as the priciest lenders on the market for a variable mortgage. Permanent TSB charges 4.2pc interest, Ulster Bank 4.3pc, and Bank of Ireland 4.5pc. Pepper also charges an arrangement fee equivalent to 0.5pc of the amount borrowed (capped at €1,800).
A first-time buyer could save almost €8,000 in interest on a 20-year variable mortgage of €260,000 by taking out a loan with EBS or AIB (two of the cheapest lenders on the market) instead of Pepper. That mortgage, which is for a house priced at €300,000, would cost the first-time buyer €117,401 over 20 years at Pepper - including the lender's arrangement fee. The same loan would cost €109,488 at EBS, and €109,801 at AIB. Pepper, however, works out cheaper than Bank of Ireland, Ulster Bank and Permanent TSB - despite the mortgage sweeteners offered by these three lenders. It would cost €129,768 for this first-time buyer to borrow €260,000 over 20 years from Bank of Ireland - even after the bank's cashback offer (which gives €5,200 back to the borrower in this case). This makes Bank of Ireland €12,367 more expensive than Pepper. Ulster Bank works out €9,624 more expensive (after taking its €1,500 contribution towards legal fees into account) than Pepper, while Permo is almost €2,100 pricier (after its cashback deal).
Trader-upper: up to €8,200 more at Pepper
Pepper is the second most expensive lender for an individual who is borrowing €260,000 over 20 years to trade up to a home worth €325,000. That borrower would pay €8,174 more for a variable mortgage with Pepper than he or she would with EBS or AIB - two of the cheapest lenders in this case. Pepper charges 3.75pc interest on such a loan while EBS charges 3.5pc and AIB 3.55pc. So this mortgage would cost €111,415 (including the arrangement fee) at Pepper - but €103,241 at AIB and EBS.
This trader-upper would therefore save almost €8,200 by taking the mortgage out with EBS or AIB instead of Pepper. The only lender which works out more expensive than Pepper in this case is Bank of Ireland, which charges €8,707 more for the loan than Pepper does - even after Bank of Ireland's cash-back deal is taken into account. The interest charged by Bank of Ireland in this case is 4.2pc.
Permanent TSB works out cheaper than Pepper - as long as you qualify for Permo's one-year discounted 3.5pc interest rate.
Investor: save up to €12,200 at Pepper
Pepper is the second cheapest for buy-to-let mortgages, according to our analysis.
An investor borrowing €260,000 over 20 years on a property worth €372,000 can get a variable interest rate of 4.75pc from Pepper and 4.8pc from Bank of Ireland. Even though Pepper's interest rate is lower, this mortgage works out slightly more expensive than Bank of Ireland's - because of Pepper's arrangement fee and Bank of Ireland's cash-back offer. This mortgage would cost the borrower €144,714 at Pepper (including the arrangement fee). Bank of Ireland charges €144,720 for the same mortgage - but once its cash-back deal is taken into account, the cost of that mortgage drops to €139,520. KBC is the most expensive lender for this investor, followed by AIB and Permo. It would cost €156,891 to borrow this money from KBC - €12,177 more than from Pepper.
The arrival of Pepper to the Irish market should boost competition - and lead to cheaper mortgages in the long run. "Pepper will be really good for borrowers who, up until now, haven't been able to get a mortgage," said Karl Deeter of Irish Mortgage Brokers. "Many self-employed people have been locked out of lending until now. Borrowers who have missed repayments on a loan also have somewhere to go."
Sunday Indo Business