There's been lots of movement in the mortgage market recently with Finance Ireland and Avant Money both launching new products, including the country's first ever 20-year fixed-rate mortgage from Finance Ireland. In this episode we discuss the rates on offer as well as the pros and cons of choosing a fixed rate.
We also discuss recent price increases from three energy suppliers, why energy prices are on the rise, as well as the acceleration of rural broadband provider Imagine's 5G wireless service to customers nationwide.
Here are the main points discussed by Daragh and Rob in this month’s podcast.
Who is Finance Ireland?
Finance Ireland is a non-bank lender that has been in operation for a few years.
The company is managed by the former banker, Billy Kane, who used to be the CEO of Permanent TSB, so he has a fair amount of experience.
Finance Ireland has just launched Ireland’s first 15 and 20-year fixed-rate mortgages, which will add more competition and choice to the market.
What’s the difference between a fixed and variable rate mortgage?
A fixed-rate quite simply doesn’t change with the length of the term. You can get a fixed rate for 3 years, 5 years, and 10 years at the moment. However, in a lot of other European countries, fixed rates of 20-30 years are quite common.
With a fixed-rate mortgage, the interest rate and your repayment are guaranteed not to change for that period.
A variable rate is the opposite. It can change and go up or down.
Previously in Ireland, fixed rates weren’t common at all. Back in 2010-2012 about 90% of people would have been on some type of variable rate, which includes tracker rates. Now over 80% of mortgages taken out are fixed rates.
Read our guide to learn more about the pros and cons of variable and fixed rates.
What’s the significance of Finance Ireland’s 15 and 20-year rates?
There has never been a fixed-rate mortgage on offer here for that length of time before.
Usually, fixed rates are between 3-5 years. Gradually over the past few years, some of the banks have started to offer 10-year fixed rates.
What kind of terms and rates does Finance Ireland offer?
Finance Ireland offers 3 and 5 year fixed rates that are common in Ireland for first-time buyers. Now they’ve introduced new rates of 15 and 20 years.
If you’re taking out a mortgage, it’s always based on how much equity you have on your home, so this is the home to value ratio. Usually the longer the fixed rate, the higher it is
Let’s say you were buying a property for €100,000 and you wanted a mortgage for €90,000, it would mean that you’d have 10% equity. The more equity you have, the lower the rate.
Looking at Finance Ireland’s 20-year rates, if you have 10% equity, so a loan-to-value of 90%, you can get a rate of 2.99%.
If you’re lucky enough to have a 20% deposit, you can get a 20-year rate of 2.9% and if you have a 40% deposit, you can get a rate as low as 2.6%. So they’re quite competitive.
Looking at the 15 year fixed rates, they go from 2.5% to 2.95% depending on how much equity you have. Then their 10-year rates go from 2.4% to 2.85%.
Who is Finance Ireland targeting?
They seem to be targeting everyone. They’re on offer for first-time buyers, movers and switchers in both rural and urban areas.
If applying for a mortgage, you should check them out. Often in Ireland, people go with big bank names, such as AIB and BOI, instead of lesser-known lenders.
What is Avant Money offering?
Their 10-year fixed rate goes from 2.1% to 2.65% depending on how much equity you have in the home, which is very competitive.
What are the pros and cons of longer-term mortgages?
The main pro is that the rate is not going to change. It adds peace of mind and certainty.
The biggest con is that you really need to lock into it. If you want to overpay or pay it off early, there will usually be a charge. Similarly, there would be a charge for switching your mortgage to another bank. These breakage fees can be quite high.
Some banks are giving a little bit of flexibility, where they will allow you to pay off a certain amount extra each year. With Finance Ireland, you can overpay on its 15 and 20-year mortgages by 10% without being charged extra.
Avant Money doesn’t offer that added flexibility right now, but there are rumours that they’re looking into it and that in the coming months they’ll allow you to overpay as well.
Can mortgage holders avail of lower rates overtime when the loan to value rate decreases?
With Finance Ireland, as you progress through your mortgage and as you pay it off year on year, it puts you onto lower rates. This is automatic.
Some other banks, maybe once throughout the term of your mortgage they will write out to you and offer you a slightly reduced rate.
Will mortgage rates go down in the future?
It's tough to know, as both KBC and Ulster Bank have announced their planned exits. So in the medium term, this will put upward pressure on prices, but it’s good to see some competition.
Even though we see rates going down slightly, it never seems to feed through into the official average rate because there are so many terms and conditions attached to some of the lower rates. For example, sometimes you have to buy an A-rated home.
Avant Money has the lowest rate in the market at the moment of 1.95% which was launched just over a year ago. This is low in an Irish context, but that compares to an average interest rate of 1.33% in the Eurozone and rates as low as 0.7% and 0.8% in countries such as Portugal and Finland.
What if your mortgage gets sold on in the future?
KBC and Ulster Bank customers will have their mortgages sold on, even though their terms and conditions stay the same.
If you sign up to a 20-year fixed rate with Finance Ireland and 5 years later they leave, it doesn’t matter who gets that mortgage, your repayment terms will not change and you’ll still have 15 years remaining at what you agreed to pay.
Is competition the only thing that will put downward pressure on prices?
Yes, but stronger competition is better than more competition.
Even though the consolidation we’re seeing in the Irish banking sector is unfortunate, if it means that Permanent TSB could come out as a stronger and bigger bank, maybe it might not be as bad as we thought.
We’re seeing a spate of energy price increases lately. Why are prices on the rise?
There are a few reasons why energy prices are increasing again.
- A lot of our electricity still gets generated from the burning of fossil fuels. The price of coal, oil and gas has unfortunately skyrocketed on international wholesale markets in the last few months. This is due to supply and demand as the world economy has started to open back up. Unfortunately, that’s feeding through to higher prices.
- There’s been a few power plants that are out of action for maintenance reasons. We’ve seen a greater number than usual out of action, which hasn’t helped things either.
- Over the past few weeks, the level of wind output has been a lot lower than what we would have usually expected, which impacted renewable energy production.
Another reason being cited for the increases are network charges. What are those?
The electricity grid in Ireland is managed by EirGrid and the gas network is managed by Gas Networks Ireland.
They charge suppliers fees and tariffs for the maintenance of the networks. For example, for the gas pipes, the pylons, the electrical wires, etc.
The maintenance charges in Ireland are the third highest in Europe. These fees have been increased by the regulator in recent months and they’re being passed onto consumers.
In Ireland, we have a target to generate 70% of our electricity from renewable energy by 2030. There's a huge investment needed in the electrical grid to make that a reality.
Renewable energy and fossil fuel energy don’t tend to mix very well together, so it takes a lot of work and investment to change the grid. It’s been suggested that anywhere between €2-2.5 billion is needed by the Irish government into the electrical grid to handle all of this solar and wind energy.
We’ve only been investing in renewable energy for the past ten years or so. This move over to renewable energy is likely going to cost consumers money for the next 15-20 years.
Read our recent blog to learn more about why energy prices are increasing.
What exactly is an energy bill made up of?
An energy bill can be broken down into four parts:
- Around 20% of an energy bill goes to government compensation. This includes VAT and the PSO levy or carbon tax.
- Around 40-45% is the cost of the actual fuel.
- Around 30% goes towards the distribution or network transmission tariffs that all the suppliers ultimately get charged for the upkeep of the grid.
- The rest, around 10%, goes to the supplier.
Imagine has announced the accelerated rollout of its 5G wireless broadband. Who is Imagine?
Imagine Communications is an Irish owned communications company that provides broadband services to customers around the country.
Imagine focuses on bringing high-speed broadband to underserved rural areas and to people who aren’t covered by high-speed providers.
Imagine is widely recognised as an innovator in wireless broadband. The company is accelerating the rollout of its 5G wireless broadband services at the moment.
What exactly is 5G wireless broadband?
When we usually refer to broadband, more often than not we mean fixed-line broadband.
5G wireless broadband is broadband delivered to your home wirelessly through a signal that’s broadcast from pylons in towers and similar infrastructure that’s located in your locality.
For it to be effective, you have to be within 15-20 kilometres of one of these towers.
If you want this installed in your home, Imagine will come out and will install an outdoor antenna that will feed the signal into your wireless WiFi router, which will then disperse the signal to your connected devices.
What speed will you get with Imagine?
Imagine offers one deal at the moment for this and the speeds available are up to 150Mbps. This is a lot faster than what a lot of people would get in urban areas.
It costs €59.99 per month on a 12-month contract, but it does offer a great option for those in rural areas.
Imagine are increasing their investment in the network due to increased demand for improved services as a result of the ongoing pandemic. The National Broadband Plan is only in its infancy and Imagine is prioritising customers who can’t get good broadband.
It currently has 268 masts in Ireland but is significantly rolling out more infrastructure around the country.
What are the pros and cons of 5G?
The main pro is that it’s given people a minimum speed of 150Mbps. It isn’t the fastest achievable broadband or download speed, but it’s more than enough for people who want to stream, game online or work from home.
The main con is that it’s expensive. There are much better options available, but maybe not to people in rural areas though.
The set-up cost is quite expensive with Imagine too, at €150. You can pay €50 initially and then pay the remaining €100 off in your first and second bill.
What’s the quality of the 5G signal like?
With 5G, the signal is harder to transmit. The frequency waves are shorter, so it’s obstructed by objects in its way, e.g. trees, buildings, and even weather.
Capacity impacts the signal, too. If there are a lot of people in your area signing up for this deal who are streaming and gaming, then it can affect the speed.
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