The Central Bank’s latest ‘Household Credit Market Report’ has revealed that average fixed and variable mortgage rates are falling.
Are you happy with your mortgage?
Unless you’re on a tracker, the answer is likely to be no. Nobody likes handing over their mortgage repayment - after all, it’s probably your biggest monthly expense.
But when your repayment takes a big chunk of change in interest with it on its way out of your bank account every month, it can really sting.
Householders in Ireland have been paying more than their European counterparts in mortgage repayments for some time now.
And with the European Central Bank’s interest rate at an all-time low of 0.00%, many have been frustrated at the lack of large cuts in mortgage rates.
But the Central Bank of Ireland has today revealed that rates are falling, finally.
By how much have rates fallen?
In the first three months of the year, the average standard variable rate on outstanding Primary Dwelling House mortgages stood at 3.75%, which is down from 3.94% on last year.
The average standard variable rate available to first-time buyers has fallen in the same period, as well. In the first quarter of 2017, that average rate has fallen from 3.63% to 3.38% on the same period in 2016.
So, what do those numbers really mean? Let’s look at an example.
Say you’re a first-time buyer, taking out a mortgage of €270,000 over 30 years. At the average Q1 2016 rate of 3.63%, the total cost of credit would be about €170,331.
But at the average Q1 2017 rate of 3.38%, your mortgage would cost you €157,232 in interest.
So, that’s a saving of over €13,000 over the lifetime of your loan.
How much do first-time buyers borrow?
The Central Bank’s report has also revealed the average loan-to-value and loan-to-income ratios of first-time buyers in the second half of 2016.
On average, first-time buyers had a LTV of 79%, meaning they had an average deposit of 21% of the value of the home being purchased.
When we consider the fact that the Central Bank’s lending rules during the period still required a deposit of 20% after the first €220,000 of a property’s value for first-time buyers, it seems first-time buyers weren’t providing much more than their minimum deposit requirement.
The Central Bank reduced the minimum deposit requirement of first-time buyers to 10% on January 1st of this year.
In the same period, first-time buyers had an average loan-to-income ratio of 2.9, meaning that they were borrowing 2.9 times their basic annual salaries when making a purchase.
This is within the Central Bank’s maximum LTI of 3.5, which was in place then and still is now.
More and more borrowers are opting for fixed rates
The Central Bank also revealed that fixed mortgage rates on new and outstanding lending fell between 2016 and 2017.
And these reduced rates seem to be proving quite attractive to prospective homeowners.
In the second half of 2016, more than half of all first-time buyers opted for fixed rates, with nearly 40% of them choosing to fix their rate for more than one year.
In the last two months, Permanent TSB, Ulster Bank and KBC all cut fixed rates, which is likely to see the trend towards fixed rates continue in 2017.
In Ireland’s notoriously volatile property market, there’s a lot to be said for the certainty that comes with fixed rates, especially for first-time buyers who are likely to have a tight budget in their first years as homeowners after parting with a large deposit.
Encouraging news for switchers and first-time buyers
Ireland’s housing market remains imperfect, and there are many who will still see it as wildly dysfunctional, but for those who are looking to make their first property purchase, the news of falling rates will be welcomed.
It will be interesting to see if the trend continues into this year as more and more people enter the market, thanks to the Central Bank’s new lending rules and the Government’s Help-to-Buy Scheme.
To see what rate each bank is currently offering, take a look at our Mortgage Calculator.
The same goes for existing mortgage holders looking to switch.
If you’ve been with the same bank for a number of years, there’s a strong chance that you could save significant sums of money by switching to a new, lower rate. Our Mortgage Calculator will allow you to see which bank will offer you the best rate.
And in case you’re worried that switching is a difficult process, the Central Bank recently revealed that the majority of people who went through the process had a positive experience doing so.