Ask the expert: What’s the best way to reinvest now that I’m selling my buy-to-let property

Our property finance expert answers your questions

I have been involved in property investment for years by way of a buy-to-let which I purchased in 2004. It has done quite well despite everything, but at this stage it’s almost impossible for me to make any return on it with the restrictions on rental income and rent pressure zones, which it is in. I’ve decided to sell up before the market flattens, but my question is what to do with the gain.
 

I anticipate around €186,000 and would very much like to look for property-related investment, possibly commercial but I’m not really sure. What is available for me?  

This is indeed a thorny topic. First things first, I assume your gain is net of Capital Gains Tax which will be payable on the uplift since 2004 and any sale price you achieve.

You also have obligations under the RTB toward tenants, and indeed, longer notice periods are being agreed through the agency at the moment, which will have to be cemented by the Oireachtas, but you should keep yourself abreast of these as they develop.

I know you remain interested in property as an investment vehicle, but wonder whether this is for sentimental or ‘gut instinct’ reasons, which can be an Irish nuance, or whether in fact you ought to be seeking the highest return across all asset classes, or a mix.
I asked Brendan Costello, of Galway-based Talk Financial about his recommendations for property investment. “Very few people still like property who don’t want to physically buy property,” he says. “Most just want out at this stage. The challenge for someone who wants to remain in the market but not in its current mix, is to access property funds on an insured basis. It’s a very slow market in recovery, with downward pressure on retail and commercial buildings as Covid put the market under serious pressure.”

He cites me the example of a pub which fetched €12.5m just before the pandemic hit, while the entire frontage of a nearby shopping centre with nearly 20 units, is currently pricing at €9.7m.

“If you don’t want to buy direct, and I would strongly dissuade from it at the moment given the heat in the market, what you’re buying into is a property fund in the likes of Irish Life or Zurich [insurance company] or buying into retail wholesale over the next four to six years as a passive investor, and there’s not much yield at all”.

Mr Costello adds that if ESG factors (environment, social and governance) are important to you, funding social housing, largely in the UK is also available through investment funds.
“A lack of government support has closed a number that were here such as Arena Capital partners which were identifying and financing secure long-term tenancies”.
As ever, this is an area where specific expert advice is strongly recommended from an independent financial broker, preferably.
 

First-time buyer here. I just want to ask if there’s a possibility of getting an approved joint mortgage for me and my husband if one of us has just been accepted to a job? Or do we need to wait six months to be approved?

I’m going to say it depends, because there’s no hard and fast rule laid down by lenders, or the Central Bank for this, however, good financial management along with the ‘prospects’ of applicants are all taken into account. I’ve seen people get over the line when they’re not yet permanent, because their qualifications and CV are such, that they’re bound to be a good risk.

Think of professionals like a doctor, or pharmacist, for instance. In addition, if they’re not looking for the full 90pc, and the property on which the loan is based is worth far more than the loan being requested, lenders aren’t so hard and fast on certain rules.
I don’t know your precise circumstances, but I’m going to assume that as first-time buyers you’re looking for the maximum loan available. Joey Sheehan, author of The Mortgage Coach agrees there is a ‘possibility and maybe a probability’ you won’t need to wait six months.

“If there is no probationary period then some banks would have no issue approving you once you can provide one payslip from the new employer on the basis that your husband has moved straight from a similar role with similar wages. If a probationary period applies, they may want him to complete it before they will advance funds, unless your husband is a higher earner and works as a professional or is state employed. Depending on your income it may determine if [the] bank would waive probation also, as if you are close enough to qualifying for the full loan on your own, they may waive completion of [the] probationary period.”

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

Q My wife has inherited a home with her two siblings. They have made the decision to sell it. We expect to have €200,000 in cash in six to nine months’ time. We have not been saving. She is self-employed and her salary fluctuates, but she has made a minimum of €50,000 in the last three years. I work as an engineer in a global software company and my salary is €90,000. I also take home €30,000 a year in bonus payments and shares. Can we use the €200,000 as our deposit, and still get a mortgage, even though we haven’t been saving?

A Yes, absolutely, you can use the €200,000 you are about to inherit as a deposit, is the answer from Joey Sheahan, head of credit at online broker MyMortgages.ie. If you have been paying rent, then the monthly rental payments will serve as proof to the lender of your ability to meet monthly mortgage repayments, he said. If you are not paying rent, then you have ample time, between now and when you receive the inheritance funds, to start saving now to be able to show the necessary savings record of six months to the mortgage provider, Mr Sheahan said.

Q My wife and I are currently insured under Vhi One Plan Extra. This plan has an annual cost of €1,646.78 each. She is aged 71 and I am 75. We are both relatively healthy and have full medical cards. Vhi Healthcare recently sent me an email saying that my plan is being replaced by a plan called Enhanced Care Complete 75. No details of this plan, or its cost, were provided by the health insurer. Could you recommend an alternative plan, or an alternative provider if necessary? We have been with Vhi Healthcare for almost 50 years now.

A The One Plan Extra scheme is one of the many plans that have now been retired by Vhi Healthcare. It covers up to semi-private in private hospitals with some refunds on eligible out-patient expenses, according to Dermot Goode of TotalHealthCover.ie. Before considering the alternative plan proposed by Vhi, which is the same cost as your existing plan at €1,641 per adult, Mr Goode said you should consider an alternative Vhi corporate plan called PMI 3613. This costs €1,340 per adult. He said this is an excellent scheme covering the same hospitals, subject to a small excess for each private hospital admission (€75 per claim). It includes excellent high-tech cardiac cover and higher refunds on eligible out-patient expenses with no excess to pay first, the broker said. If you are open to switching insurer, you could also consider the 4D Health 2 scheme from Irish Life Health at €1,351 each, or the Simply Connect scheme from Laya Healthcare at €1,361 each, Mr Goode said.

Q I contribute 25pc of my income towards my pension, which is with Irish Life. I’m fully conscious of how markets can fluctuate, particularly this year. That said, I am losing money at the moment, which is hard to accept. I wonder should I stop my contributions altogether or should I keep going? Any advice would be appreciated.

A Stock markets are volatile and will fluctuate up and down over time. They are particularly volatile at the moment given what is happening in the world. A long-term view is best, according to Joey Sheahan, director of MyLifeCover.ie. He said he would not worry about a loss like this in the short term, as it is inevitable that you will see losses for some of the years over, say, a 30 or 40-year period. When values fall in the market, that is the best time to buy as there is an opportunity to buy units at a lower level, which will hopefully recover to previous levels over time, the financial adviser said. Mr Sheahan said you should continue your contributions to your pension, on the basis that you are buying at a lower level than previous values. It is also important to review your risk profile and ensure that you are invested in the appropriate funds. For example, somebody with a high-risk appetite could invest in funds which could show much higher movements. This might include, say, a 20pc increase or decrease in values in a short period. Someone with a low-risk appetite could invest in lower-risk funds, which would have much smaller movements, maybe moving 3pc or 5pc up or down in a short period. Mr Sheahan recommends that you seek advice from a financial adviser before making any decision about your pension.

Source: https://www.independent.ie/business/personal-finance/can-an-inheritance-be-used-for-a-deposit-as-we-have-no-savings-41825924.html

A leading mortgage broker is calling on the country’s eight main lenders to increase the mortgage approval timeframe from 6 to 12 months.

Experts at online brokers MyMortgages.ie are reporting swathes of borrowers getting on average two or three mortgage approvals from lenders because of the time lag between their initial approval and finding a property.

Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach explained the situation.

“The most recent BPFI statistics showed that there were 5,355 approvals in May 2022 alone – 2,640 of which were for first time buyers,” he said. “From what we’re seeing on the ground, there’s a probability that up to 40% of these applicants were also approved for a mortgage in the last 12-24 months, but have not been able to find a suitable property in the intervening period.

“These volume of these reapplications could be reduced and could significantly lessen the workload of both borrowers and lenders alike, and could, in many cases, result in quicker turnaround times for mortgage approval in the market overall.”

MyMortgages.ie contend that only around two-thirds of the €1.45bn approved in May is likely to be drawn down, based on the current approval process and due to the lack of housing supply.

“The dearth of supply of housing in this country is likely to be with us for many years to come unfortunately. In the meantime, we have to look at other ways of alleviating the stresses of potential purchasers, and expediting the process, where possible, for those who are fortunate enough to be in a position to buy,” Mr Sheahan said. “If banks were to introduce a 12-month approval as standard, which some banks previously offered, it would have a significant impact on the marketplace. Some estate agents won’t allow borrowers to even view properties if they do not have a current approval, meaning that borrowers are forced to keep renewing their approval.

“As far as I can see, there’s really no impediment to banks offering a 12-month approval. There would be no risk to lenders because prior to issuing a loan offer, which is the formal contract between the lender and the borrower, the bank can always request an update from borrowers on any change of employment or other circumstances in the interim that would have a negative implication on their financial status. A mortgage approval is always subject to change prior to draw down.”

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

Avant Money (formerly known as Avantcard) launched today and confirmed its new mortgage products are now available to Irish customers, with fixed rate mortgages starting from 1.95%, by far the lowest rate in the market today.

The company has been providing credit cards and personal loans to Irish consumers for over twenty years. Avant Money is owned by Spanish banking group Bankinter, which also has operations in Portugal and Luxembourg.

We, at MyMortgages.ie, are proud to announce that we are one of Avant Money’s partners and we are here to guide and advise switchers, movers and first-time buyers on the range of these new products.

Joey Sheahan, Head of Credit, MyMortgages.ie and author of The Mortgage Coach says:

“Avant Money’s entry into the Irish market is the best news for Irish mortgage holders. 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 or maybe even 2 decade opportunity where a new lender enters the Irish market and reduces interest rates to this extent. We are delighted to be one of Avant Money’s partners and our advice to mortgage holders is now is the time to review their current mortgage, even if they have done so recently. 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 mortgage based on reducing interest rate from 2.95% to 1.95%”.

Ireland once again has the most expensive new mortgage rates in the Eurozone.

Rates in July were more than double the average for the rest of the 19 countries sharing the euro, according to new figures from the Central Bank.

It said that the average new mortgage rate in Ireland in July was 2.73 per cent, down 5 basis points on the same month last year. The average for the Eurozone was 1.28 per cent, although the financial regulator noted the rate varied considerably across countries.

Ireland is back to having the highest mortgage interest rates in the Eurozone, having trailed only Greece’s high homeloan repayment rates in recent months.

Despite topping the Eurozone mortgage rates league, Ireland’s rate is down 0.09 per cent compared to last year, and at its lowest level since at least August 2017.

Greece (2.58 per cent) and Latvia (2.54 per cent) have the next highest Eurozone mortgage rates to Ireland, while Portugal (0.8 per cent) and Finland (0.71 per cent) charge the lowest mortgage rates.

The weighted average interest rate on new fixed rate mortgage agreements in Ireland was 2.62 per cent in July, a decrease of 5 basis points on July 2020. Fixed rate mortgages accounted for 83 per cent of new agreements over the month.

For new variable rate mortgage agreements, the average interest rate stood at 3.29 per cent in July, a decrease of 15 basis points on July 2020.

The volume of new mortgage agreements amounted to €718 million in July, a 29 per cent increase on the same month last year, when volumes had declined significantly following the onset of Covid-19. It also represented a 5 per cent increase compared with June 2021.

Joey Sheahan, Head of Credit with MyMortgages.ie, said that the increase in the volume of new mortgage agreements in July “reflects buyers ‘catching up’ on purchases they would otherwise have made last year. The volume in August 2020 was just €468 million so we could easily see August 2021 being up 50 per cent+ higher on this number.”

Sheahan continued: “House prices continue to increase and while the Government has put plans in place to deal with the under supply, many people appear to believe that prices may keep rising and they are therefore better off buying now.”

Meanwhile, renegotiated mortgages amounted to €324 million in July, an increase of 29 per cent on the previous year. The high volume of renegotiated mortgages in July is driven by a large volume of expiring fixed-term contracts.

Breaking down the numbers

To put the figures into perspective, according to the Banking & Payments Federation Ireland (BPFI), the average first-time buyer mortgage is now around €250,000.

This means a typical first-time buyer who’s borrowing that amount over 30 years will pay almost €181 a month more for their mortgage compared to the Eurozone average, or almost €2,200 a year.

Why are Ireland’s mortgage rates so high?

One of the reasons why Irish homeowners are paying more than others in the Eurozone is due to a lack of competition in the Irish mortgage market.

The market remains heavily concentrated in the hands of a few main banks, with Allied Irish Banks, Bank of Ireland and Permanent TSB holding around 70 per cent of the mortgage market between them.

More competition would help bring down rates, but there’s anecdotal evidence that some foreign lenders are being put off entering Ireland due to the riskier nature of lending here.

Another reason concerns home repossession and the inability of banks to take back a property if the loan has gone bad.

In some European countries a bank will take back ownership of a property within the space of a year or so if the loan isn’t being repaid.

This isn’t the case in Ireland where the number of repossessions, even in cases where the mortgage has been in arrears for years, remains negligible due to the length and complexity of the process and the legal and political impediments faced by banks.

A third reason is that many Irish banks, unlike most other banks in European countries, offer cashback offers, with Permanent TSB offering 2 per cent, EBS and Bank of Ireland offering up to 3 per cent cashback, while Ulster Bank will offer €1,500 towards your legal fees.

If we factor in the cashback costs as well as the extra fee income many European banks generate through set-up and admin fees, Irish mortgage rates, although still high, are closer to the Eurozone average.

Source: https://www.buzz.ie/news/irish-news/irish-mortgage-interest-rates-back-24944099

The average price paid for a home in Ireland rose to €310,641 in the year to July, the latest figures from the Central Statistics Office (CSO) show.

Residential property prices increased by 8.6% nationally over the previous 12 months, compared to growth of 0.7% in the 12 months prior to last July and up from 6.9% in June.

In Dublin, house prices rose 8.1% year-on-year to a mean average of €479,454, rising to €649,916 in Dun Laoghaire-Rathdown, with prices up 9.1% outside the capital, most expensive in Wicklow €412,396.

‘In the period before COVID-19, the annual growth in residential property prices fell gradually from 13.4% in April 2018 to 0.9% in March 2020,’ CSO statistician Viacheslav Voronovich said.

‘While price growth remained subdued throughout most of 2020, a trend of accelerating growth emerged in the latter part of the year and into 2021.’

House prices nationally are still 10.7% lower than their 2007 peak, with the Dublin market 16.5% off highs posted in February 2007 and the rest of Ireland 13.1% below the May 2007 record.

Since early 2013, house prices nationally have nearly doubled (+99%), rising 106.8% in Dublin from their February 2012 low and 100% in the rest of Ireland since May 2013.

The volume of property transaction in July rose 49.2% year-on-year and 10% month-on-month, with 3,822 purchases filed with the Revenue in July compared to 2,561 the same month last year and 3,473 in June.

The total value of transaction finalised in July was €1.3 billion, with existing dwellings (3,221) accounting for 84.3% of purchases and new homes (601) representing just 15.7%.

First-time buyers made up just under a third (32.3%) of purchasers in July, and MyMortgages.ie head of credit Joey Sheahan said ‘their share of the market will continue to grow’ if the Help-to-Buy Scheme is extended in next month’s Budget.

He added that rising transaction numbers were ‘hopefully’ a sign of greater construction output.

Brokers Ireland director of financial services Rachel McGovern said that double digit growth in some area was ‘unhealthy for potential buyers and the economy at large’.

‘With the exception of the release valve presented by new blended working arrangements that would appear to have increased the appeal of areas like the South-East and the Midlands, which are seeing an 11% increase in prices, home ownership in the most populous areas of Dublin and its environs has largely become the preserve of those on higher incomes or those with strong financial support from family,’ she said.

Source: https://www.msn.com/en-ie/money/other/average-house-price-exceeds-310-000-as-home-prices-have-doubled-since-2013/ar-AAOthnI

New figures from the Banking and Payments Federation Ireland (BPFI) show that a total of 5,033 mortgages, worth almost €1.3 billion, were approved in July – the most in any month since BPFI began collecting data in 2011.

On an annualised basis, 53,511 mortgage were approved in the twelve months ending July 2021, valued at €13.1 billion. This is up 3.15 per cent compared with the twelve months ending June 2021 and an increase in value terms by 3.72 per cent over the same period.

While the figures suggest an impressive recovery from the Covid-19 pandemic for the housing sector, if we dig deeper into the numbers, the bounce back may not be as strong as it initially seems.

Breaking down the numbers

Of the 5,033 mortgages which were approved last month, first-time buyers (FTBs) were approved for 2,766 mortgages (55 per cent of total volume) while mover purchasers accounted for 1,272 (25.3 per cent).

It represented a 3.3 per cent decrease in approval volumes compared to June, but when compared to last July, approval volumes were up by 48.2 per cent.

In total, mortgages approved in July 2021 were valued at €1.2 billion – of which FTBs accounted for €707 million (55.1 per cent) and mover purchasers for €382 million (29.7 per cent). The value of mortgage approvals rose by 0.6 per cent month-on-month and by 58.3 per cent year-on-year.

What is a mortgage approval?

A mortgage approval is defined as a “firm offer” to a customer of a credit facility secured on a specific residential property.

A mortgage approval arises when the lender issues a formal offer of mortgage finance to the customer (whether it be in print or some other durable form) for a specific residential property which contains the Notice of important information to be included in a housing loan agreement specified in the Consumer Credit Act 1995.

All mortgage loans must be secured on residential property in Ireland.

Speaking on the latest figures, Brian Hayes, Chief Executive, BPFI said: “The latest mortgage approvals for July show continued growth, especially for FTB mortgages. In total almost €1.3 billion in mortgages were approved, the most in any month since BPFI began collecting this data in 2011.”

“Looking at the annualised figures which allows us to more accurately assess emerging key trends, there were 53,511 mortgage approvals in the twelve months ending July 2021, valued at almost €13.2 billion – again, the highest level since the data series began.

“The value of approvals more than doubled since the twelve months ending October 2016, driven by growth in lending to FTBs and re-mortgages or switching.”

“These are significant figures and very much signal a robust pipeline for drawdown activity later in the year.”

Figures may not paint an full picture of the property market

While Hayes claims these figures show continued growth in the housing market, there are a number of factors we must consider while analysing them in order to get a complete picture.

As pointed out by Joey Sheahan, Head of Credit with MyMortgages.ie, 2020 was a tumultuous year for the housing sector, as activity in the market was very low as a result of the initial lockdown.

“Year on year comparisons on mortgage approval figures aren’t currently the most telling as the market has been an absolute roller-coaster during Covid,” Sheahan said.

“While the overall market is booming, we are seeing a lot of borrowers renewing their mortgage approvals as their previous approvals didn’t give them sufficient time to view and enter into an agreement on a house.

“Others were unable to progress previous approval due to being on the Employment Wage Subsidy Scheme (EWSS).

“These issues were particularly challenging during lockdown in the first four months of the year so the mortgage drawdown figures could be artificially high.”

The figures in context

While the figures suggest things are improving significantly in the housing sector, it is important to remember that the mortgage market was still relatively depressed in July of last year owing to uncertainty around the trajectory of the pandemic which impacted the property market generally.

Figures released by the Central Statistics Office earlier this month show the property market continues to be stoked by pandemic-related factors, such as increased savings and lower-than-anticipated supply.

Transaction prices in June 2021 were 6.9 per cent higher -than they were in the same month last year and the spread of price increases was countrywide.

Source: https://www.buzz.ie/news/irish-news/mortgage-approvals-hit-10-year-24854957

ICS Mortgages is reducing interest rates across its new residential variable and fixed-rate mortgages.

The lender said it will cut rates by up to 0.5% from next Monday 9 August.

Fixed interest rates will start from 1.95%, while variable interest rates will start from 2.45%.

Under these new rates, ICS said a typical first-time buyer taking out a 30-year mortgage of €250,000 could save more than €18,000 over the lifetime of their mortgage, when compared to the rates offered by one of the largest providers in the market.

That estimated saving is based on a €250,000 loan over 30 years, fixed for three years, with a Loan to Value of 90%, assessed against a similar mortgage offered by the one of the largest providers in the market, with a three year fixed rate of 2.55%.

“Buying a house is the single biggest financial decision most people will make in their lifetime. In recent years, however, Irish homebuyers have been offered a shrinking pool of options for how they fund such an essential purchase,” said Ray McMahon, Chief Commercial Officer at ICS Mortgages.

Mr McMahon said that favourable international financial market conditions allow them to now offer new residential customers reduced repayments.

Daragh Cassidy of price comparison website, bonkers.ie welcomed today’s news from ICS Mortgages.

“Strong competition is needed now more than ever as PTSB, AIB and BOI could end up with well over 80% of the mortgage market if the loan sales associated with Ulster Bank and KBC’s exits go through,” he said.

Mr Cassidy said ICS Mortgages is now only the second lender in Ireland, after Avant Money to offer a rate below 2%.

However, he said we shouldn’t lose sight of the fact that Ireland has among the highest mortgage rates in the Eurozone.

“The average rate on a new mortgage here is currently 2.80%, which is over double the currency bloc’s average of 1.27%,” he pointed out.

However Mr Cassidy said recent rate reductions from the non-bank lenders in particular, such as Finance Ireland, Avant Money and now ICS mean rates slightly closer to European levels are finally becoming more widely available.

“Avant Money, Finance Ireland and even ICS may not be familiar names to many mortgage seekers, who may be tempted to go to more well-known lenders such as AIB and BOI as their first port-of-call.

“However recent developments clearly show that it is the smaller, newer lenders who are offering some of the best value right now,” he said.

Meanwhile, Joey Sheahan, Head of Credit with MyMortgages.ie said the mortgage market has grown increasingly competitive both for first time buyers and those looking to switch mortgage or trade up.

“We predict a huge upswing in existing homeowners looking to switch to reduce their monthly payments on their variable rate mortgage, or to secure long-term cost certainty with one of the new fixed rate offers,” he said.

Mr Sheahan said a borrower could save €56,000 in interest by reducing rate from 2.95% to 1.95%.

He said that would be based on a €300,000 loan at 60% loan to value over 30 years.

Source: https://www.rte.ie/news/business/2021/0805/1239114-ics-mortgages-cuts-interest-rates/

Housebuyers are paying an average of 7% more for a new home than they would have a year ago, with experts warning prices are only going to keep rising as long as the enormous gap between supply and demand remains.

The prices of homes have almost doubled since their recession-era low in 2013. While there was no increase in the year to June 2020, over the past year they have surged again — rising by between 6.9% and 6.4% in Dublin, and 7.4% across the rest of the country — according to the Central Statistics Office.

Source: https://www.irishexaminer.com/news/arid-40358162.html

Should I switch?

Just like you shop around for cheaper or better car insurance or electricity provider, it’s worth reviewing your mortgage every few years to see if you can make savings. 

What is Switching?

Switching is the term used to describe the process of changing mortgage provider. This is usually done to get a lower interest rate on your mortgage from a new lender with a view to saving money on interest. 

Some people go through the entire term of their mortgage without considering whether their lender is offering them the best rate. However, it is prudent to review the terms of your mortgage on a regular basis – perhaps as part of a wider financial ‘health-check’. You don’t need to switch every year, but it’s a financially savvy move to take the time to consider the current market, the value of your property, and the interest rates on offer from all lenders on an ongoing basis.

My Neighbour is Doing it – Can I?

The answer is, most likely, yes. I estimate that one in every three mortgage holders would save by switching. (I am not including European Central Bank related tracker interest rates in these figures as they currently offer low interest rates given that the ECB base rate is 0%, meaning a typical tracker mortgage interest rate is approximately 1% and such mortgages have not been available in Ireland since 2008.)  

If you have been on the same rate for more than three years, or you are coming to the end of a fixed rate period, then you should certainly review your options. 

Regardless of whether you are a variable or a fixed rate mortgage holder, you could potentially save tens of thousands of euros over the remaining term. 

The Myths and Misconceptions

–       ‘I can’t switch if I’m on a fixed rate.’ Not true. You can break a fixed rate contract. We see many banks currently do not have a breakage fee however you may be charged a breakage fee by your lender, but the savings you make upon switching, plus, potentially, any cashback offer from a new lender, could more than cover the charges. In addition, due to the current low cost of funds available for banks, many don’t impose a fee for exiting a fixed rate contract. You will need to call your bank to check this, however.

Looking at Mick and Fiona for example, they have a home loan with €300,000 outstanding. They are currently on a fixed rate of 3.6% for the next two years with 28 years left on their mortgage term. They contact their bank to check the early fixed rate breakage fee and are advised that the fee is €1,050. They contact a mortgage broker who advises them that if they switch lender, they can obtain a two-year fixed rate of 2.3%, which will reduce their monthly payment from €1,418 to €1,211 which is a saving of €207 monthly or €2,484 annually or €4,968 over the two-year period. So, in this example, even though Mick and Fiona are liable to pay a breakage fee of €1,050, it is worthwhile as they will save €4,968 over the next two years alone.  

–       ‘I need to have a LTV of less than 80% on my home.’ Again, not true. While some lenders will offer you a better rate according to the amount of equity you have built up, you can still switch if your LTV is between 80% to 90%.

–       ‘Switching is a long and difficult process.’ Not true. Switching can be straightforward with the help of an expert and some banks require less documentation for switchers than for a new application.

–       ‘I’ll just end up spending any savings made on the legal costs of conveyancing’. (Conveyance is the legal term for processing the paperwork involved in buying and selling a property and transferring the deeds of ownership). Not true. You will know in advance, once you or your broker runs the numbers whether the savings made will outweigh any ancillary costs that may be incurred. If you stay with the same lender but move to a different rate, then you may not incur any additional costs.

Cash Back on Switching

The impact can be significant. If we look at Rua and Kerry’s experience, they took a €400,000 mortgage over 35 years at a three-year fixed interest rate of 3.6%. The interest rate they selected at the time of draw down was reasonably competitive and they also received upfront cashback from their lender. However, their rate is now changing to a higher variable rate of 4.2%. Their payments will be going to €1,805 monthly. They have tried to negotiate a lower variable rate with their current lender without success so they decided to switch to a lower variable rate of 2.95% with another lender which will reduce their monthly payments to €1,534. This will save them €268 monthly or €3,212 annually or €102,912 over the remaining 32 years of their mortgage. In addition, they receive €2,000 from the new lender, which covers the legal fees involved in switching.    

What Will I Need?

If you decide to proceed with switching, you will need to go through the mortgage application process and submit your documentation. This varies from lender to lender. Typically, you will require the following documents:

–       Passport Identification.

–       One recent payslip, Employment Detail Summary and salary certificate.

–       Three/six months recent current account statements – depends on lender requirement.

–       3 Most recent credit card statements. 

–       Most recent mortgage statement.

–       Relevant application form and bank declaration.

Where Do I Start?

–       Contact your existing lender to confirm your rate of interest, balance outstanding and term remaining on the mortgage. 

–       If you are on a fixed rate, ask your lender what fee, if any, they charge for breaking the mortgage contract.

–       Ask your current lender to review your interest rate and enquire about variable and fixed-rate options for an existing customer.  

–       Contact a mortgage broker and ask them to compare your existing mortgage terms to what’s on the market. (Technically, you can do this research yourself, but it will mean numerous calls to multiple lenders so in reality it’s probably not the easiest route for you to take.) The more equity you have in your home, the better the new terms you’ll be offered, but you can switch even if your loan is 90% of your value.

–       Your broker can check what incentives other lenders are offering to switchers. The ‘incentive’ usually covers the legal costs, as well as any possible breakage fee, although this would need to be worked out on a case-by-case basis. 

–       Assess the best value option for you. A broker can run calculations on the interest rates you have been offered to see the potential savings you can make. This should not be a complex process. But there is market research to be done and there are lots of forms to be filled and boxes to be ticked. A broker will do all the legwork, calculations and communicate with lenders on your behalf and explain all of your options. 

–       You will need to decide whether to stick with your current lender or move to a different one. Moving to a different provider will mean going through the mortgage approval process again. Changing lenders can be relatively simple if you have expert help. 

–       Ultimately you need to ask yourself a question: why would I stick with a lender that is not giving me the best value?

Take your time, weigh up all your options and seek expert advice to help you decide if switching is the best course of action. 

How Much Can I Save?

Switching to a lower interest rate can save you a considerable amount of money in the long term depending on the rate and capital amount. 

Let me give you an example of savings on an interest rate reduction of 1.6%. By switching from a 4.2% rate to 2.6%, a mortgage holder with a loan of €350,000 over 30 years can save over €300 per month, €3,732 per year or €14,897 over 4 years. 

In summary, it costs mortgage holders absolutely nothing to explore what ‘switching’ their mortgage can yield them in interest savings. I have sought to challenge and address any lack of knowledge or awareness by outlining the process and the financial benefit to be gained from taking this step. 

People can often be put off by their first mortgage experience, which for many is stressful. However, the second time round should be a lot more straight-forward. Yes, of course there will be forms to fill, but the rewards for this bit of administration can be in the region of thousands and life changing as a result.