How lockdown allowed some couples finally to buy their own homes
by Amy Molloy, Irish Independent
In a year marked with ups and downs, 2020 is ending on a good note for thousands of first-time buyers.
Ireland’s lockdown between March and June afforded some house-hunters an opportunity to save money, plan and prioritise.
With mortgage experts forecasting the first quarter of 2021 to be “the busiest in recent history”, the Irish Independent spoke to first-time buyers who recently got the seal of approval.
Mortgage experts believe there will be a surge in activity next year, driven mainly by first time buyers.
Vaccine confidence and a growth in savings will also be a factor says Joey Sheahan head of credit at MyMortgages.ie. Mr Sheahan said there had been a 106% growth in first time buyers applying for a mortgage in 2020.
Mr Sheahan also predicts lending exemptions will take centre stage from early in the year, with first time buyers in grappling for some sought after exemptions.
The company has been operating here for a number of years, providing credit cards and personal loans under the Avant Card brand. Owned by Spanish bank Bankinter, Avant Money will now offer fixed-rate mortgages starting at 1.95%, with variable rates starting at 2.5%.
Last week, the Central Bank released July mortgage data which showed that the average interest rate on new mortgages stood at 2.82%. Only Latvia and Greece have higher mortgage rates, while the average rate in the Euro area stands at only 1.35%.
Joey Sheahan is head of credit at MyMortgages.ie and is the author of The Mortgage Coach. He says that the arrival of Avant Money is great news.
“We have long seen European rates well below 2% compared to closer to 3% for Irish mortgage holders, and now, for the first time since before 2008, rates below 2% are available to homeowners in Ireland. It’s a once in a decade, maybe even two-decade opportunity, where a new lender enters the Irish market and reduces interest rates to this extent.”
The company will not be dealing directly with customers but will be using the broker network to sell their products.
Daragh Cassidy of independent price comparison and switching site Bonkers.ie, is also positive about the arrival of sub-2% rates. He points out, however, that not everybody will be able to avail of them.
“While the headline rate of 1.95% from Avant Money is certainly eye-catching and will capture all the headlines, it requires a deposit of at least 40%, which will be vastly unachievable for most first-time buyers. Most first-time buyers are only able to save a deposit of 10% or 20% max.”
“The lowest rate available to buyers with a deposit of this size from Avant Money is 2.35%, which isn’t far off the rates already available at the moment.”
He points out that first-time buyers can currently get a two-year fixed rate of 2.30% from both KBC and Ulster Bank, while KBC also offers a 2.35% fixed rate over three years.
Moreover, Avant Money has also decided against the kind of cashback offer that has proved very popular in the Irish market. The aforementioned Ulster Bank will pay €1,500 cashback on mortgage drawdowns, while KBC offers €1,500 on its three, five, and 10-year rates. So from that point of view, Avant Money isn’t offering much better value here.
“And while cashback has proven to be controversial,” says Mr Cassidy, “it can’t be denied that it’s been extremely popular with first-time buyers in Ireland who might use the funds to help pay back the ‘bank of mum and dad’ once they’ve gotten their mortgage, or to help towards buying things like furniture once they’ve moved into their new home.”
He’s also disappointed that Avant Money is only offering a fixed rate of up to seven years. Fixed rates of up to 10 years are now on offer here, while on the continent, it’s possible to fix for 20 years. More competition in this space would have been welcome.
That said, we’ve already seen the established mortgage providers reacting positively to the arrival of a new competitor. AIB has just announced cuts of up to 0.2% on all its fixed-rate mortgages and Haven, which is part of AIB group, has also upped its game. The mortgage intermediary is now offering new home buyers €5,000 cashback on fixed-rate mortgages of €300,000 or more that drawdown between 21 September, 2020, and 31 December, 2021.
The rest of the banks are sure to follow suit.
The Avant Money offering may be particularly attractive to switchers, particularly those who bought their property between five and 10 years ago. They will likely have sufficient equity in the house to allow them to avail of the sub 2% rate. Because Avant has eschewed the cashback offer, however, switchers need to be aware that there will be no contribution to the legal bills typically associated with a switch. These can run to between €1,000 and €1,500.
Joey Sheahan of MyMortgages, which is one of the brokers Avant Money will be working with, advises everyone to review their current rate.
“A mortgage holder with €300,000 outstanding with 32 years remaining and loan to value of below 60% can save €158 monthly or €60,000 over the term of the mortgage based on reducing the interest rate from 2.95% to 1.95%,” he said.
Trevor Grant of the Association of Irish Mortgage Advisers also urges mortgage holders to take a fresh look at the market. “Our members regularly meet consumers who are paying between €200 and €300 a month more than they need to, which is not an effective use of their hard-earned money,” he said. “With so many offers out there, many if not most homeowners could now secure a better deal for themselves if they shopped the market.”
He said the recent release of the CSO’s property price index for July shows that there’s been no collapse in prices as a result of the Covid-induced economic contraction. In the year to July, residential property prices fell by 0.5%.
“There is still a cohort of potential homeowners that have remained fully employed throughout Covid, who are actively looking for a home, and who are successfully applying for and securing mortgages. A significant number of first-time buyers, particularly in Dublin, traditionally come from those sectors — digital, IT, financial, and public sector — that have proved resilient during Covid-19 and the prospect of buying a new home is still as real for them as it ever was.”
“The volume of applications received from first-time buyers and movers by our members, particularly over the past three months, has demonstrated a strong level of demand. As reflected in recent industry figures, there is an increased demand for market-based mortgage advice from mortgage seekers.”
But while prices are holding up, and while some of us are protected from the recession, there’s no denying the impact of Covid-19 on the mortgage market. The Central Bank’s July statistics, released last week, show that €445m was agreed in new fixed-rate mortgages in the month, a decrease of 31% on July 2019. New variable rate mortgage agreements fell even further — by 46% year-on-year — to €111m.
Consumer finance company Avant Money has begun taking applications for its products from Monday with a fixed rate mortgage offering that is the lowest on the market.
Avant Money, formerly known as Avantcard, is based in Carrick-on-Shannon in Co Leitrim and is owned by Spanish banking group Bankinter.
Its new mortgage products are now available to Irish customers, with fixed rate mortgages starting from 1.95 per cent, the lowest rate on the market.
“We have long seen European rates well below 2 per cent compared to closer to 3 per cent for Irish mortgage holders, and now, for the first time since before 2008, rates below 2 per cent are available to homeowners in Ireland,” he said. (Joey Sheahan)
Avant Money executive Chris Paul said: “We are confident that our products and rates will be appealing to Irish customers who have been under-served for far too long when it comes to their mortgages.
“Unlike other providers, we have shunned short-term gimmicks such as cashback offers in favour of products and rates geared towards providing true, quantifiable savings over the life of a typical mortgage.”
Minister for Public Expenditure Michael McGrath said the added competition was good news for Irish home buyers.
“Mortgage rates in Ireland have been falling for awhile, but remain much higher than most eurozone countries,” he said.
“News today of a new entrant with low rates and rate reductions by existing lenders is very good news for consumers.”