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.
What has been said
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.
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.
A woman looks at the local Estate Agent’s window in Dublin city centre
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.
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.
House price growth has risen to a three year high with an 8.6% climb up to July, it has been revealed.
Prices in Dublin rose by 8.1% while prices outside it grew by 9.1%, new figures from the Central Statistics Office have shown.
In July 2021, 3,822 dwelling purchases by households at market prices were filed with Revenue, an increase of 49.2% compared to the same month last year.
The median price of a dwelling purchased in the 12 months to July 2021 was €267,000.
Viacheslav Voronovich, Statistician, said: “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. 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.
“Since the latter part of 2020, the number of dwellings purchased by households have returned to pre-Covid-19 levels.
“In the first seven months of 2021, there were 24,280 dwellings purchased by households at market prices. This compares to 24,416 for the first seven months of pre-pandemic 2019.”
Joey Sheahan, Head of Credit at MyMortgages.ie, added: “First Time Buyers make up a strong cohort of buyers as always, but we would expect that if the Help-to-Buy Scheme is extended in the upcoming budget, as expected, their share of the market will continue to grow.
“The percentage of new dwellings transacted over the period has also increased which hopefully is a sign of greater construction output in a market where the delivery new homes is absolutely crucial.”
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.
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.
The figures are based on the sums people are actually paying, and not on asking price.
The biggest surges have occurred in the Mid-West (up 8.7%) and the South-East (8.6%), though in the South-West, they are only up 2.7%.
In Dublin, residential property prices have risen 103.7% from their February 2012 low, while residential property prices in the rest of the country are now 95.8% higher than their trough, which was in May 2013.
Experts have warned that the picture will remain bleak for would-be homebuyers without substantial government intervention and a huge increase in the completion of new homes.
The Institute of Professional Auctioneers & Valuers (IPAV) said the rising prices of recent months highlighted by the CSO figures are likely to continue for the foreseeable future.
According to Pat Davitt, IPAV chief executive, the divergence between supply and demand is enormous and is unlikely to change in any meaningful way in the near future.
“Supply is so tight that in some cases would-be sellers are not putting their homes on the market, lest they may not be able to find a suitable property to buy or that by the time they do prices may have moved beyond their budgets,” Mr Davitt said:
We’re back in an upward trajectory in all areas of the country. And anyone who is concerned with the wellbeing of society as a whole would not want to see this continue at this level for long.
Mr Davitt said that those on average incomes are unable to afford to buy a home in many areas. And for those who can afford it, a huge amount of the money they borrow and pay interest rates on for the lifetime of their mortgages goes back to the Government in taxes and levies.
“The new Government plan must tackle the supply issue in an unprecedented way,” he said, adding that the solutions must involve State investment as recently recommended by the ESRI as well as local authority utility investment and a review of the tax take on housing.
Joey Sheahan, head of credit at MyMortgages.ie, said: “It seems, from these CSO reports, that property prices are really only going one way for the foreseeable future and that’s up. This will continue as long as demand for properties outstrips supply.
“While construction has picked up, material supply issues and staffing shortages are hampering the delivery of much-needed homes,” he added.
Trevor Grant, chairperson of the Association of Irish Mortgage Advisors (AIMA), said the figures reflect months of construction delays caused by the pandemic.
“With most sites back up and running, we would hope to see an increased supply of new homes coming on stream later this year,” said Mr Grant:
That said, there are still too many developments caught in planning limbo and that is something that requires urgent action by Government.
Despite the rising cost of buying a home, Mr Sheahan argued that the high cost of renting means it is not necessarily a bad time to consider entering the property market.
“Rents continue to financially cripple those in rental accommodation, so, in a vast number of cases, the cost of repayments on a mortgage is going to be smaller than what people are shelling out on rent,” Mr Sheahan said.
He said the situation is much different now than the one that led to the property crash over a decade ago, with prices rising more slowly and more stringent lending rules in place.
On Friday 16th April, it was announced the KBC were looking to sell their Irish business to Bank of Ireland. The understandable uncertainty has led to many of their mortgage holders looking at moving their mortgage to another lender for a greater sense of security. We have received an influx of calls from mortgage holders with KBC, asking whether or not they should be looking to move their mortgage to a different bank and what their options are.
This process will take some time to complete and KBC continues to have a duty of care to current customers and obligations to fulfil in that regard, so mortgage holders should not be worried or anxious.
That said, it would be prudent to look at this time as a chance to review your current position mortgage-wise – primarily what rate you are paying, and how this compares to what is currently being offered in the market. Although KBC’s departure from the Irish market is not a positive development in the Irish banking sector – particularly, from both a competition and an employment perspective, the uncertainty surrounding KBC’s future could at least turn out to be a beneficial wake up call to mortgage holders who are paying rates in excess of what they could get elsewhere.
The arrival of Avant Money to the market has seen many mortgage holders with mature mortgages, and/or a strong loan to value, switch to exceptional market-beating rates.
We are advising any KBC customer that is on a rate greater than 2.3% to review their options. But this doesn’t apply to KBC mortgage holders alone – anyone paying more than this, regardless of which lender they are with, should be talking to an expert to see if they can get a better deal either with their current lender or with a different provider. And don’t let whether you are on a fixed or variable rate stop you – you may well still have options to move.
If you would like to complete an initial assessment to see what potential savings you could make by switching, click here for the form and we will review and respond to you directly.
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.
Mary & John
Before Switch
After Switch
Fixed 2 Yr interest rate 3.6%
Fixed 2 Yr interest rate 2.3%
Monthly repayment €1,418
Monthly repayment €1,211
Total savings over term €4,968*
*savings excluding breakage fee
– ‘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.
Ruth & Ken
Before Switch
After Switch
Fixed 3 Yr interest rate 3.6%
Variable interest rate 2.95%
Monthly repayment €1,802
Monthly repayment €1,534
Total savings over term €102,912
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.
Before Switch
After Switch
Variable interest rate 4.2%
Variable interest rate 2.6%
Monthly repayment €1,712
Monthly repayment €1,401
Total savings over 4 years €14,897
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.
On Friday 19th February, we received clarity on a firm decision that Ulster Bank will undertake a phased withdrawal from the Irish market.
The understandable uncertainty has led to many of their mortgage holders looking at moving their mortgage to another lender for a greater sense of security. We have received an influx of calls from mortgage holders with Ulster Bank, asking whether or not they should be looking to move their mortgage to a different bank and what their options are.
This process will take a number of years to complete and Ulster Bank continues to have a duty of care to current customers and obligations to fulfil in that regard, so mortgage holders should not be worried or anxious.
That said, it would be prudent to look at this time as a chance to review your current position mortgage-wise – primarily what rate you are paying, and how this compares to what is currently being offered in the market. Although Ulster Bank’s departure from the Irish market is not a positive development in the Irish banking sector – particularly, from both a competition and an employment perspective, the uncertainty surrounding Ulster Bank’s future could at least turn out to be a beneficial wake up call to mortgage holders who are paying rates in excess of what they could get elsewhere.
The arrival of Avant Money to the market, has seen many mortgage holders with mature mortgages, and/or a strong loan to value, switch to exceptional market-beating rates.
We are advising any Ulster Bank customer that is on a rate greater than 2.3% to review their options. But this doesn’t apply to Ulster Bank mortgage holders alone – anyone paying more than this, regardless of which lender they are with, should be talking to an expert to see if they can get a better deal either with their current lender or with a different provider. And don’t let whether you are on a fixed or variable rate stop you – you may well still have options to move.
If you would like to complete an initial assessment to see what potential savings you could make by switching, click here for the form and we will review and respond to you directly.
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.
Mick & Fiona
Before Switch
After Switch
Fixed 2 Yr interest rate 3.6%
Fixed 2 Yr interest rate 2.3%
Monthly repayment €1,418
Monthly repayment €1,211
Total savings over term €4,968*
*savings excluding breakage fee
– ‘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.
Rua & Kerry
Before Switch
After Switch
Fixed 3 Yr interest rate 3.6%
Variable interest rate 2.95%
Monthly repayment €1,802
Monthly repayment €1,534
Total savings over term €102,912
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.
Before Switch
After Switch
Variable interest rate 4.2%
Variable interest rate 2.6%
Monthly repayment €1,712
Monthly repayment €1,401
Total savings over 4 years €14,897
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.
A joint income of almost €100,000 is now needed just to buy the cheapest new apartment in the greater Dublin area.
This is because it is not financially viable for developers to build apartments to sell to ordinary people.
They can only be built to sell if the apartments are constructed in more expensive areas where higher sales prices are achievable, a new report found.
It costs so much to build high-rise accommodation that 76pc of the units analysed were being funded and would be rented out by so-called cuckoo funds – where investors buy up an entire block of apartments directly from the developer before they hit the open market, pushing first time buyers out of the market.
The Society of Chartered Surveyors Ireland said that a first-time buying couple would require a deposit of €38,000 and a joint income of €98,000 to purchase the lowest-price apartment type.
Affordability remains a critical issue, the society said in an analysis of the cost of building apartments in the greater Dublin area.
The report found that the sales price of the two-bed apartments reviewed ranges from €375,000 for a low-rise, low spec unit in the suburbs, to €569,000 for a medium rise (nine to 15 storeys) high spec apartment in the city.
This means a first-time buyer couple would require a deposit ranging from €38,000 to €57,000, and a combined salary range of €96,000 to €146,000 to afford these, based on Central Bank lending rules.
A couple both earning €44,000 and with a combined salary of €88,000, and a deposit of €37,500, would not be able to meet the mortgage requirements of the lowest-priced apartment, a low-rise suburban unit priced at €375,000.
Just 20pc of all households enjoy earnings of more than €80,000, according to Central Statistics Office figures.
The total cost of developing medium-rise apartments now ranges from €411,000 to €581,000, including Vat.
In contrast, last July the Society of Chartered Surveyors Ireland found the cost of delivering a three-bedroom semi in the Dublin area was €371,000.
Apartment building is so expensive that cuckoo funds are funding their development and then renting them out. The investment funds have been perceived as pushing first-time buyers out of the market, but others maintain that even fewer apartments would be built without their funding.
The Society of Chartered Surveyors (SCSI) compared the viability of the traditional apartments that are built to sell with the build-to-rent model involving investment funds.
There are fewer restrictions on build-to-rent schemes relating to the apartment mix, car parking and size, following changes by the Department of Housing in 2016 and updated in 2018.
SCSI chair Paul Mitchell said pension funds and other investment funds which bought these schemes had made a major contribution to apartment supply.
He said it is so expensive to build high rise that only funds could make their development viable because they can take a long-term view of the asset.
He said it was so expensive to build apartments that “76pc of the units analysed are for rental rather than sale”.
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.
Get ready for a mortgage price war. Avant Money has just arrived in the market, offering fixed rate deals below 2% for the first time.
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.
AIB has announced cuts of up to 0.2% on its fixed-rate mortgages.
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.
I have €20,000 for a deposit and am saving €1500 a month but lenders are still refusing a mortgage for my self-build home project – what are my options?
