Sunday 19 August 2018

Homing in on savings: Financial rewards for changing mortgage are worth it

Sinead Ryan

Sinead Ryan

I'LL bet you're prepared to switch almost anything else you've read about today except the product with the biggest saving of all.

In fact, according to the Competition and Consumer Protection Commission, just 2pc of people have switched mortgage provider in the last five years, at a time when competition is finally hotting up and recapitalised banks are crying out to give away money.

Why? Well, because it has 'hassle' written all over it. The savings won't be seen immediately, as they would if you got, say, a cheaper motor insurer or a better deposit rate. It's made over years, which is ironically the very reason it should be done.

Someone with €250,000 and 18 years left to run on a mortgage with 4.25pc rate - not even the highest charged - could save a massive €32,603 by switching to one of the lowest, e.g. AIB's 3.1pc, if they have a decent loan-to-value.

Given most of us would be prepared to haggle with our mobile phone provider over a lousy tenner a month contract, it's at least worth considering. Recent scandals on trackers and ongoing repossessions are bad PR for banks, so we're always a little cynical when we see ads promoting lots of lending at low rates or gimmicky cashback and free insurance schemes, so don't switch just because of those. But you can save, and it isn't as hard as it looks.

New measures are under consideration by the Central Bank. While its primary job is keeping banks profitable, and those under its charge do that by fleecing customers for as much as they can get away with, it also has a dual role of governance, making sure they're not overstepping the mark or hoodwinking customers.

"It's not our role to promote switching, but to ensure lenders are not putting impediments in place," it says. It's currently working out what those "impediments" might be, but certainly it needs to tackle the lackadaisical approach towards it. The CCPC has a decent website giving information on switching (www.consumerhelp.ie) while comparison sites like www.bonkers.ie keeps up to date fixed and variable rates from all lenders.

Firstly, banks do want your custom but, crucially, you need to be the 'right' kind of customer. This means it's a buyers' market if you are solvent, paying your current mortgage with more than 20pc equity in your house and have a good job.

The not-so-welcome switchers include those in arrears (a definite no-no for the estimated 70,000 homeowners who are in this position), those who have had a mortgage restructured or are in negative equity (bank websites will say it is available, but in reality, it's pretty hard to get), or in positive equity, but only to the tune of 10pc.

Lucky tracker holders, it goes without saying, should stop reading now and cling on to their loss-making (for the bank, that is!) contract at any price.

Calculating LTV

The Loan to Value ratio is crucial before you go mortgage shopping. Banks offer cheaper interest rates for lower risk. It is calculated by dividing the outstanding mortgage by the value of the house.

The former is easy to get by calling your bank, the latter is reliant on a guesstimate. Check the property price register for similar sales in your area, look at Daft.ie or MyHome.ie to check current sale values.

If you're going ahead, a formal valuer will need to come in, so be conservative. For example: remaining loan (€150,000) / house value (€344,000) x 100 = 43.6 LTV.

If your LTV is under 50pc, you stand an excellent chance of getting a better rate. Preferential rates are offered up to 80pc.

Broker or DIY

You can, of course, do all this yourself, but it might be less stressful to use a specialised mortgage broker. It will cost around €500 (but do get an advance quote) and all the leg work will be taken off you.

They will coordinate the necessary documentation and also know of the non-published deals on rates for good customers which all banks offer. A good existing payer is effectively 'pre-selected' for them, so it's not nearly as difficult as getting a first-time buyer loan.

Fixed or variable

To fix or not to fix - that is the question. Banks often offer lower fixed rates if you lock in for three to five years. They don't want you switching! Most new mortgages are variable rate loans, but there is a trend toward fixed as rates relax. In the first quarter of 2016, 42pc of people opted for this. You need to balance off the comfort of having exact repayments against the risk of rates dropping even further.

How to switch ...mortgage

Step 1

Calculate your loan-to-value (LTV) ratio.

Step 2

Search www.bonkers.ie or www.consumerhelp.ie for latest rates using LTV.

Step 3

Apply for your credit rating (www.icb.ie, €6).

Step 4

Complete application forms with new bank. Collate income evidence, e.g. P60s, bank statements (three to six months), details of existing mortgage.

Step 5

Effect new mortgage protection policy, if required.

Potential saving: €1,680 p.a.

Total time: 3 months

 

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