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.
In fact, someone paying a 4.5% rate who has €250,000 remaining on their mortgage over 20 years, could save around €290 a month at present by switching. Over the lifetime of the loan, that will add up to tens of thousands of euro in savings.
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 all 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 on 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%.
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?
As a clear sign of increasing competition in Ireland’s property market, most banks are now offering to cover some or all of your legal fees to encourage borrowers to switch. Here’s what’s on offer:
AIB - €2,000
To help cover your switching costs, AIB will pay you €2,000 within two months of switching. 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%.
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.
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%).
Ulster Bank - €1,500
By switching your mortgage to Ulster Bank, you’ll get €1,500 towards your legal fees. Switchers will receive the cashback amount within two months of drawdown.
Although it may not fully cover your legal fees, Ulster Bank has some of the lowest rates on offer at the moment, including Ireland's lowest four-year fixed rate, and was named Best Mortgage for Switchers at the bonkers.ie National Consumer Awards 2020.
With Ulster Bank you'll also receive a free home valuation as well as a discount of up to 50% off your home insurance if you switch. Not bad.
Mortgage interest rates are where the real savings lie
While the prospect of having all switching legal fees covered is enticing, it is the interest rate on offer that will determine whether or not switching mortgage will save you money over the lifetime 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 value long-term, 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.
There are potentially tens of thousands of euros to be saved by switching mortgage. The banks' incentives for switchers are a sign of increasing competition in the mortgage market, which is promising for borrowers. The incentives on offer also confirm that short-term financial costs shouldn't be a deterrent to switching for borrowers who believe they are over-paying, and we hope to see the number of mortgage switchers continue to increase over the coming months.