The number of people switching mortgage providers in Ireland, although increasing, is still low, despite the fact that there may be tens of thousands of euro to be saved by doing so. The legal fees associated with switching are a key deterrent, but many banks are now offering cash incentives to cover these costs.
According to the Central Bank of Ireland, there are "significant sums of money" to be saved by switching mortgage and, slowly but surely, more and more Irish borrowers are taking advantage.
For example, someone paying a 4.5% rate who has €250,000 remaining on their mortgage over 20 years, could save almost €300 a month at present if they switched to AIB's 2.20% four-year fixed rate.
That's a saving of almost €14,100 over just four years!
So, with so much to save, why have mortgage holders been so slow to switch?
Well, switching can be scary, particularly when it comes to your biggest monthly bill. Then there’s the paperwork and small print. And significantly, there’s also the murky legal fees that are associated with switching too.
If you’re like me, you probably recoil at the sound of ‘legal fees’, assume that they will always be big, and feel uneasy about the prospect of spending a lot of money without really knowing what it’s going towards.
So, let’s take a closer look at those legal fees, see what they’re for and find out how much they’ll cost you.
Why do I need to pay legal fees to switch mortgage providers?
If you decide to switch mortgage providers, you must employ a solicitor to take care of the processing, paperwork and liaising. Thankfully, when it comes to switching, the cost and workload for the solicitor is about half of what it is when buying a new property.
Most of your legal costs will go on your solicitor’s professional fee, with some extra euro going towards his/her outlays, associated costs and, of course, VAT. Here’s a summary of what they’ll do for their fee:
1. First, your solicitor will request the deeds to your home from your old bank and act as the point of contact with your new bank for the switching process.
2. Your solicitor will then invite you in for a consultation to go through the loan offer from your new bank and to advise on any questions or concerns you might have.
3. If you’re happy to proceed with the switch, you’ll sign a new loan agreement, which your solicitor will send to your new bank. If you wish to add a new name to the title deeds of your home, your solicitor can help with that too.
4. Once there’s a legally-binding contract in place, your solicitor will continue to deal with your new bank (and a broker, if there’s one involved) until your loan cheque is issued.
How much can I expect my legal fees to be?
All in, legal fees for switching mortgage provider should amount to somewhere between €1,200 and €1,500 plus VAT at 23%. Things like land registry fees and search fees, which you would have had to pay as a first-time buyer, won't be incurred again.
Although not strictly a legal fee, there is always a valuation fee associated with switching mortgage too, which will cost you around €150.
Which banks will cover my legal fees when I switch?
Due to a lack of housing supply and the difficulties many people have saving for a mortgage deposit, the number of first-time buyers is still well below what it was at the peak of the boom. To make up for this shortfall in business, many lenders are actively targeting switchers and most now offer to cover some or all of the legal fees to encourage borrowers to switch.
So here’s what’s on offer:
AIB - €2,000
To help cover your switching costs, AIB will pay you a €2,000 lump sum. AIB will also pay the sum into the current account you use, even if it's with another bank.
Bank of Ireland – up to 3% cashback
If you switch your mortgage to Bank of Ireland you’ll receive an unlimited 2% cashback on the total value of your mortgage.
So, if you have €200,000 left on your mortgage and you switch to Bank of Ireland, you’ll get €4,000 back in cash upfront. That should more than cover your legal fees and should still leave you with enough for a new coffee machine for your kitchen, or even a weekend away.
If you are a Bank of Ireland current account customer, you'll get an additional 1% of the mortgage amount back in cash after five years (subject to meeting the terms of the mortgage).
EBS - up to 3% cashback
Switch your mortgage to EBS and you’ll get 2% cashback on your mortgage at drawdown and an additional 1% cashback in five years' time. Unlike BOI, there's no need to have a current account with EBS to get this additional 1%.
Haven - up to €5,000
Haven has two cashback offers at present: a €2,000 offer available with its low 2.15% 'green mortgage', and a €5,000 offer for people switching a mortgage of at least €250,000 and who choose a fixed rate.
KBC - €3,000
If you switch mortgage with KBC, it will contribute €3,000 towards your legal fees. You’ll receive this tidy sum within 30 days of drawing down your mortgage, and it should more than cover your legal fees.
Right now KBC is also offering a 25% discount on its home insurance for 12 months if you switch.
Of course KBC has recently announced that it is considering exiting Ireland. But for now, it's still very much open to new business. And if your mortgage ends up getting sold to another lender, they must continue to honour the same terms and conditions as before so you have little to worry about.
Permanent TSB - 2% cashback
Switch mortgage to Permanent TSB and you’ll get 2% cashback on your mortgage at drawdown and also 2% cashback on your mortgage repayment every month until 2027 when you pay from its Explore Account. What does that mean? Check out the following example:
Let's say you have €200,000 remaining on your mortgage. At drawdown you'll get €4,000 back in cash and then you'll get a further €21.78 per month or €261.36 per year until 2027 (monthly cashback based on 3-year fixed rate of 2.80%, based on a loan-to-value ratio of between 60% and 80%).
In March PTSB announced a new low mortgage rate of 2.25% - however in a change of tack for the bank, this doesn't come with cashback on your mortgage at drawdown. All its other mortgage products still do though.
Ulster Bank - €1,500
By switching your mortgage to Ulster Bank, you’ll get €1,500 towards your legal fees.
Although it may not fully cover your legal fees, Ulster Bank has some of the lowest rates on offer at the moment, starting from just 2.20%.
With Ulster Bank you'll also receive a free home valuation as well as a discount of up to 50% off your home insurance in year one if you switch. Not bad.
Of course Ulster Bank has announced its planned exit from the Irish market too. But as with KBC, it's still open for new business for now. And here's why you should still consider an Ulster Bank mortgage.
Who can switch mortgage?
Each bank has its own set of criteria for mortgage switchers and if your financial circumstances have changed for the worse since you qualified for your initial mortgage, you may have problems switching.
In general you also need to have around at least €40,000 to €50,000 remaining on your mortgage before a lender will consider your application. You also can’t switch if you're in negative equity. And ideally you should have at least 20%.
Can I switch mortgage provider if I took a cashback offer?
Although the banks won't be willing to admit it upfront, you can switch mortgage provider at any stage even if you've received cashback from your bank.
This is because under the EU's Mortgage Credit Directive from 2014, a bank can't seek to claw back any cash that it's paid out as part of your mortgage.
So theoretically, if you take out a mortgage with any of the above lenders, there's nothing to stop you switching to another lender in a few years' times without being penalised. However, if you take out a fixed-rate mortgage, you may need to wait until the end of the fixed-rate period, otherwise you could be charged a breakage fee.
Mortgage interest rates are where the real savings lie
While the prospect of having all switching legal fees covered is enticing, in most cases it is the interest rate on offer that will determine whether or not switching mortgage will save you money over the remainder of your loan.
Quite often, the lenders which offer some of the lowest rates (such as Avant Money and Finance Ireland) and therefore the best longer-term value, offer no cashback at all.
If you're thinking of switching, our mortgage calculator will help you determine where your best long-term options lie.