Mortgages

What will AIB’s mortgage cuts mean for first-time buyers?

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Mark Whelan

Mark Whelan

Former Head of Communications & Events

AIB will cut a range of its fixed and variable mortgage rates on November 1st, but what will this mean for first-time buyers?

Soaring rents, a housing shortage and rising prices have made it particularly difficult for Ireland’s first-time buyers to get on the property ladder in recent years.

However, there is cause for optimism for those of you hoping to make a property purchase before the year is out.

The number of first-time buyer mortgage approvals rose by 43% in the first seven months of the year and AIB recently announced that it will cut a number of its mortgage rates on November 1st.

So, how will these cuts affect you?

AIB’s first-time buyer mortgage cuts

On November 1st, AIB will reduce its mortgage rate for buyers with a loan-to value ratio of over 80% from 3.50% to 3.15%.

Loan-to-value ratio refers to the proportion of a property’s value that must be borrowed. So, an LTV of over 80% means that the buyer has had to borrow over 80% of the overall price of the house or apartment in order to afford it.

The vast majority of first-time buyers fall into this category, meaning that there is a significant rate reduction on the way if you’re planning on making your first purchase in the near future.

While a cut of 0.35% might not sound like very much, it can add up to significant savings over a few years.

Let’s look at an example.

Say you’re a first-time buyer looking to buy a €300,000 home (the average value of a first-time buyer property in 2016 was €250,361).

You have your Central Bank-required 10% deposit (€30,000) and therefore need to borrow €270,000. And let’s say you plan on repaying the loan over 30 years.

At AIB’s existing rate of 3.50%, your monthly repayments would be about €1,212.

But at the bank’s new rate of 3.15%, your monthly repayments would come in at €1,160 or so - €52 cheaper every month.

A saving of €52 every month over a 30-year loan adds up to a whopping €18,720!

How will AIB’s new rates compare in the market?

As things stand, AIB’s first-time buyer rate of 3.15% is set to be the market-leader for mortgages with an LTV of over 80% from November 1st.

The best alternative rate currently available for the same LTV is 3.50%, which is being offered by Haven, Ulster Bank and KBC. It’s worth noting that the latter two reserve this rate for their current account holders only.

Permanent TSB and EBS are each offering a rate 3.70% along with 2% cashback, while Pepper is offering 3.90% and Bank of Ireland is offering 4.50% along with 3% cashback.

It’ll be interesting to see if AIB’s competitors feel the need to change their rates before November 1st in response to AIB's cuts.

Good news for first-time buyers

It hasn’t been easy for Irish people to get on the property ladder in recent times, with the average age of a first-time buyer now standing at 34.

AIB’s rate cut, and the potential impact this will have on other rates in the market, is some overdue welcome news for prospective purchasers.

In 2016, first-time buyers borrowed an average of €185,939 to make their first property purchase. That figure is likely to be higher this year, due to rising house prices and the increasing number of mortgages being issued.

With this in mind, it is essential to compare all rates available before choosing a bank if you’re a first-time buyer, no matter what your LTV or circumstances are.

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