I often advocate switching products, whether it’s health insurance or electricity provider. However, the best value can come from switching the biggest outgoing of all - your mortgage. But many people are naturally put off by the thought of so much paperwork and hassle. - Sinead Ryan
Don’t get me wrong, it’s not as simple as making a phone call, but the effects can save you a fortune - over €30,000 on lifetime interest on a €200,000 mortgage, for example.
Some people have got the message. The Central Bank’s latest figures show mortgage switching has doubled, albeit off a very low base. However, contrast that with new mortgages - which are down I4.7pc - and first-time buyer draw downs, which fell 23.1pc in the last three months of 2015.
Banks are desperate. They cannot lend as much as they need to, because of the strict new deposit rales for borrowers. Anxious to find new customers, they are aggressively going after switchers, and prepared to offer all kinds of incentives to get them.
Some offer better rates for switcher customers than existing ones. It’s worth comparing a number of lenders before you decide. Indeed, if you find a better rate approach your own bank and threaten to switch to see if they can match it. If you and your property are an attractive enough customer, they’ll vie to keep you.
Rates have been cut to lure customers: AIB by 0.25pc last August - its third cut; Ulster Bank knocked 0.3pc off its rates in September; and KBC followed with a 0.25pc cut of its own in October. Added to that, they’ll offer legal fees, cash back or cut price insurance to try and get you over the line.
Bonkers.ie has a good comparison of mortgage rates, but it warns that switching doesn’t suit everyone. “If you’re in negative equity, have had arrears in the past 12 months, are currently in a fixed-rate term, or have less than €30,000 left on your mortgage, you cannot switch. If you’re on a tracker you’re not going to benefit as you’ll lose it. But recent interest rate cuts have brought the average variable rate in Ireland down from 4.2pc to 3.76pc in the past six months. It’s still far above the average EU rate of I.99pc, but customers are starting to take notice and make the switch”.
Finance expert Karl Deeter of Irish Mortgage Brokers has the following tips for anyone considering switching:
1. You’ll need to have equity in the property, so check PropertyPriceRegister.ie to see what properties sold for in your area. Ideally your house should be worth 20pc or more than your mortgage.
2. You’ll need a clean credit history (with some exceptions possible) so get your credit report to see what the banks are seeing about you. It’s available from the Irish Credit Bureau (www.icb.ie) and costs €6;
3. Central Bank rules mean you can’t go beyond 3.5 times your joint income (there are some exceptions), so do those sums. Bonuses and overtime are generally disregarded in these calculations.
4. Remember, in lending, the lowest rate is most likely the best one, because loans don’t generally have a lot of add-on features. However, some banks have different pricing policies for existing customers, so find out about that.
5. Banks are pricing fixed rates low right now because they don’t want people to switch from them. Fixed rates lock you in for one to five years, so be sure it’s a good one.
6. Last of all, have all of your identification and income documents, bank accounts and other paperwork in order. “Getting it done right doesn’t take long, doing it wrong takes forever”.
I’d add that it’s a good idea to use a broker, as the paperwork, although straight-foward, can be a bit of a minefield.
A decent broker will charge you around €500, but it’s worth it as they’ll find the best long-term saving for you.