The number of people switching mortgage providers in Ireland is exceptionally 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. We examine the legal fees associated with switching mortgages and reveal which banks are offering the best incentives.
According to the Central Bank of Ireland, there are "significant sums of money" to be saved by switching mortgage and, slowly but sure, more and more Irish borrowers are taking advantage.
In fact, switching from a 4.5% rate to a 3.5% rate on a 20-year €300,000 mortgage could save you nearly €160 a month. Over the lifetime of a loan, that can 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 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?
On top of the professional fees for the basic legal services provided by your solicitor, there will also be some “outlays”, which must be covered too. This includes the consultation time, along with the cost of the paperwork and administration. And then there’s VAT.
Although not strictly a legal fee, there is always a valuation fee associated with switching mortgages too, which will cost you between €150 - €250 plus VAT.
All in, legal fees for switching mortgage providers should amount to somewhere between €1,200 and €2,000.
Which banks will cover my legal fees when I switch?
As a clear sign of increasing confidence 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:
Bank of Ireland – 3% cashback on the mortgage’s total value
If you switch your mortgage to Bank of Ireland before June 30th 2018, you’ll receive an unlimited 2% cashback return on the total value of your mortgage.
So, if you’re buying a home for €200,000 and are taking out a €180,000 mortgage, you’ll get €3,600 back straight away. That will cover your legal fees and should still leave you with something left over for a new coffee machine for your kitchen.
If you are a Bank of Ireland current account customer, get an additional 1% of the original mortgage amount as Cashback after 5 years (subject to meeting the terms of the mortgage).
KBC - €3,000
If you switch mortgages before June 30th 2018, KBC 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 cover your legal fees in full. KBC is also offering a 50% discount on its Home Insurance product for 12 months if you switch.
Ulster Bank - €1,500
By switching your mortgage to Ulster Bank, you’ll get €1,500 towards your legal fees. This offer is available until June 30th 2018.
Permanent TSB - 2% cashback
Switch mortgages to Permanent TSB before Spetember 30th 2018 and you’ll get 2% cashback on your mortgage at drawdown and now 2% cashback on your mortgage repayment every month until 2027. What does that mean? Check out the following example:
Let's say your mortgage amount is €300,000. At drawdown, you'll get €6,000 back in cash and then you'll get a further €29.40 per month (€352.77 per year) until 2027. (Monthly cashback based on 3-year fixed rate of 3.30% over a 25-year term paid to 2027).
AIB - €2,000
To help cover your switching legal costs, AIB will pay you €2,000 into the current account you use to pay your new mortgage within two months of your switching.
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 mortgages will save you money over the lifetime of your loan. Our mortgage calculator will help you determine where your best long-term option lies.
There are potentially tens of thousands of euros to be saved by switching mortgages. The banks' incentives to 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.