Sunday 23 September 2018

Mortgage holders locked into fixed rates now able to switch without penalty

Most mortgage holders who are locked into uncompetitive fixed rates can break free and get a better deal without having to pay a penalty. Stock picture
Most mortgage holders who are locked into uncompetitive fixed rates can break free and get a better deal without having to pay a penalty. Stock picture
Charlie Weston

Charlie Weston

Most mortgage holders who are locked into uncompetitive fixed rates can break free and get a better deal without having to pay a penalty.

Fixed rates have been falling for months. But many people took out fixed rates when the interest charged on them was much higher.

Consumer advocate Brendan Burgess said most people were unaware that recent changes meant that most banks now charge no breakage free, or only a small one, when people break out of a fixed rate early.

He advised homeowners who fixed at 4pc or 5pc to ring their lenders and see if there is a cost to opt for current fixed rates. The latest Central Bank research indicates that fixed rates for between one and three years have fallen to an average of 3.13pc.

The EU's mortgage credit directive means banks have had to change how they calculate a breakage fee when a mortgage holder wants to exit a fixed rate early. Until recently, banks calculated the fee based on the money they would lose until the end of the term from not getting the higher rate. It is also known as a prepayment penalty.

But the EU directive means they can only charge a penalty based on what they would earn from keeping the mortgage funds on deposit, Mr Burgess said. As deposits are at or near zero, this means breakage penalties are very low.

The exception is AIB, which is charging a high breakage fee. However, the group's EBS and Haven are using the same consumer-friendly breakage calculation as most lenders.

A spokesman for AIB Group said: "AIB Bank, EBS and Haven have different breakage methodologies as a result of their backgrounds as independent entities in the market. We continue to operate the respective businesses on a standalone basis with distinct offerings."

Mr Burgess has published examples of breakage fees for Bank of Ireland, Permanent TSB, Ulster Bank, KBC Bank and EBS on his Askaboutmoney.com website. Most are zero.

Charging

He said: "People who fixed six months or a year ago at higher rates can now break out practically for free. They may have fixed at 5pc or 6pc over five years and have three years to go.

"They can now break out and get a three-year fixed rate of 3pc or 4pc. They could save a shed-load of money."

He advised people locked into high fixed rates to contact their banks. Mr Burgess said that most banks were charging nothing, with some imposing a small administrative fee.

Recent Central Bank statistics show that 55pc of those taking out a new mortgage are opting for fixed rates, as the interest on these is often lower than the rate charged on variables.

However, Irish homeowners are still paying over the odds. The Central Bank figures show that the average variable mortgage rate in Ireland in October stood at 3.43pc, almost twice the European average of 1.85pc.

Separately, new figures today show activity in the construction sector accelerated in November, boosted by increased house building and increased hiring.

Ulster Bank's regular Construction Purchasing Managers' Index tracks the sector month to month and recorded the fastest pace of growth in five months in November.

Irish Independent

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