John Hearne hears expert opinion on how the rise in people switching mortgages is causing financial institutions to compete for business
Are you considering switching your mortgage? You're not alone.
According to the Banking and Payments Federation Ireland ( BPFI), mortgage switching rose by 105% in the three months to January, 2016.
Though this increase is coming from a very low base, it still demonstrates where the activity is in the mortgage market. The same set of figures from the BPFI revealed that actual mortgage draw- downs fell 14.7% in the same period, while first- time buyer draw- downs fell by no less than 23.1%. Proof, if it were needed, that the Central Bank's lending rules are having a major impact on the market.
Mark Whelan, of switching and price comparison site, Bonkers. ie, says that we can expect competition to drive better value for mortgage switchers for some time to come.
Standard variable rates are still falling. " The average in Ireland, a year ago, was 4.2%," he says. " Now, we're down at 3.76% and I think the latest changes will pull that down even more."
The " latest changes" are the announcements earlier this week from AIB and KBC.
AIB was first out of the blocks, on Monday morning, with the news that it would cut its standard variable rate by 0.25% and introduce a €2,000 switching incentive. The rate cut, which comes into effect on July 1, will take the bank's standard variable rate down to 3.4%.
"This is the fourth time in 18 months that the bank has cut mortgage rates," says Whelan, "adding up to a total of a 1%, standard- variable rate cut over the period. And this latest move will place an even brighter spotlight on Ireland's other banks."
His calculations suggest that - as a result of the cut - a customer with a 25 year mortgage will see their monthly repayment fall by €13.42 for every €100,000 that they have borrowed.
Later the same day, KBC announced a 0.10% cut in variable mortgage rates for new customers, with a loan-to-value ratio of under 80%, as well as cuts to a number fixed rates products. New customers, who also open a KBC current account, can access a standard variable rate of 3.2%."
The mortgage rate cuts," says Whelan, " will come into effect on May 17 and are accompanied by some new options for existing customers, too...Interestingly, the bank's standard variable rate, which currently stands at 4.25% for non-current account holders, will remain unchanged."
It's not just the banks that are turning their attention to switchers. Mark Whelan points to a much overlooked nugget in the Fine Gael election manifesto. The party said that they would like to see a standardised mortgage switching form and code of conduct - similar to what exists for current- account switchers. "
We'll see what happens," says Whelan, " but it was quite clear, in the manifesto, that this was their way of handling the stalemate in the property market."
If such a code did come to pass, Whelan says that it would fuel substantial further competition in the marketplace. "
Something that would hold the banks to a standardised set of rules or practices would be really helpful, because consumers worry about the process... Getting a mortgage was the most stressful thing they've ever done. The idea of going through the process again, and not having a great understanding of the savings, allows them to convince themselves that it's not worth the hassle."
All of the banks have now rolled out a suite of incentives designed to break that inertia and to entice further switchers to the party. Both AIB and KBC will give you €2,000 towards your legal fees, when you switch. Ulster Bank will give you €1,500 , while both Bank of Ireland and Permanent TSB are offering a cash payment to of 2% of your mortgage, when you draw down.
There's little doubt that these are attractive offers, and should easily cover legal fees in almost all cases.
Mark Whelan agrees. "Offers like these remove one of the barriers to switching. I think two of the things people worry about, when switching, are paperwork and hidden costs. The €1,500 or €2,000 removes that barrier and allows you to focus on the best rate."
He says, however, that Bank of Ireland's 2% cashback offer - which is being very widely advertised at the moment - should come with a health warning. "Their standard variable rate is still way up, at 4.25%. The fact that they're giving the 2% cash- back sounds lovely, but you've got to look at the long- term. If you're going to be paying a variable rate of over 4%, then that cash will be eaten into quite quickly."
Because the offer is dependent on the amount of the loan you're taking out, there's a risk of inflating the mortgage just to secure a better cash sum. Bad idea. The key thing, Whelan says, is to focus on the rates and the savings on offer, rather than on the additional sweeteners.
Bonkers.ie offers a powerful cost comparison tool, which cuts through the marketing and makes it clear where the best value lies. You plug in the amount you wish to borrow, the value of the property, the term of the mortgage, and the type of rate you prefer. The system returns with the range of offers available.
Switching is not for everyone. If you're lucky enough to be on a tracker mortgage, it's highly unlikely that switching will offer any additional value. If you're unlucky enough to still be in negative equity - like 100,000 odd households in Ireland, at the moment - you're unlikely to be eligible to switch.
One other issue may throw a spanner in the works. If you've racked up substantial debt, or your ability to repay has changed a lot since you were originally granted your mortgage, you may also have difficulty switching.
If this is you and you're still looking for ways of getting your mortgage costs down, take a look at the fixed rates the banks are currently offering. There is some very good value out there.
"The banks are working to get their customers onto fixed rates," says Mark Whelan. " Bank of Ireland, for example, made a fixed- rate cut last September and, in the second half of 2015, two thirds off all of their mortgage take- ups were on fixed rates, which is quite astonishing."
The biggest rate changes that KBC announced on Monday were on the fixed side of the house. If you've got a loan-to-value rate of below 80%, you can get a two year, fixed rate of 2.99%. It's unquestionably a good rate, but there are risks attached. If variable rates fall below this level, you will have to continue to pay the fixed rate for the full contracted period. Also - and here's part of the reason the banks are pushing their fixed rates - if you do move to fixed, it's much more difficult to switch. It can be done, but you are likely to be hit with break costs for ending the fixed contract prematurely. For more information on the options available, check bonkers.ie.