As everyone begins to grapple with increased energy costs at home, perhaps not enough thought has been given to the biggest saving of all: switching your mortgage.
With interest rates on the rise, continuing well into next year, it means most mortgage holders could save substantially if they move their home loan – the biggest outgoing for most families – to another lender.
There has never been a better time to consider it, says Trevor Grant, Chair of the Association of Irish Mortgage Advisors.
“The volume of switching enquiries has mushroomed since the ECB raised its baseline interest rate by 0.5pc in July. We expect the number of people looking to switch out of standard variable rates, some tracker rates and even some fixed rate contracts with a relatively short period to expiry, to grow exponentially in the coming week and months. Switchers could eventually exceed the number of movers, which would be unprecedented.”
The process is more painful and long-winded than moving your energy supplier or mobile phone contract, but the savings are huge.
Joey Sheehan, of MyMortgages.ie and author of The Mortgage Coach says each 0.5pc rate increase has a big impact on tracker customers, and now, for those on standard variable rates (SVRs) too.
“Based on a loan of €200,000 over 25 years, a tracker going from 1.5pc to 2pc sees monthly repayments increase from €799.87 to €847.71 with an additional €21,716.62 in interest being repaid over the term,” he explains.
Variable rates are higher, so customers increasing from 3.15pc to 3.65pc will have their repayment go up €53.31 to €1,071.41 per month, and while fixed-rate borrowers are, for now, insulated from increases, those base rates are getting higher for new borrowers, so come the end of the fixed term, they’ll be in for a shock.
So, depending on what kind of mortgage you have, what is the best advice?
Trevor Grant says the starting point should be knowing what you have.
“While the July increase was the kick start that many mortgage holders needed to reassess their current mortgage terms, [another] increase will have thousands more looking for a better deal with their own lender or, more likely, with another lender. Market-based advice from a mortgage broker will confirm the options available to mortgage holders. Your current lender may well offer you the best terms, but it’s worth bearing in mind also that they are not obliged to tell their mortgage customers if better terms are available elsewhere.”
Anyone who has a margin at 1pc or less should probably just stick with the tracker
Trackers used to be the holy grail of mortgages. But maybe even some of them could benefit from a switch, says Joey Sheehan.
“Anyone who has a margin at 1pc or less should probably just stick with the tracker but someone with a margin of 1.5pc or more should consider fixing. In between that figure, it’s hard to call. If your tracker is 2pc or higher, you’re paying more already than what you can fix it for before further rate increases.”
Daragh Cassidy of comparison website Bonkers.ie says most standard variable rate mortgages are “poorly priced”, even before the ECB began its new policy, so it makes sense to switch if you can.
“Just using Permanent TSB as an example; its SVR is currently 3.95pc. However, it is offering existing customers a seven-year fixed-rate of 3pc. So you get a much lower rate, as well as peace of mind and certainty that your repayments won’t go up for seven years. And of course, in this example you don’t even need to switch banks. It’s a case of ticking a box on a form.
It’s a similar story with Bank of Ireland. However if you want to switch lender, fixed rates well under 3pc are still available from most of the lenders – for now at least."
The green option
Going ‘green’ may help you as banks scramble to prove their eco-friendly credentials. Houses with good BER ratings are also a better risk and carry a higher resale price.
AIB offers good rates for those with A or B ratings – 2.1pc is available for switchers with 50pc loan-to-value for five years. The non-green loan is 2.35pc. Broker-operated sister lender Haven will give you 2pc to fix for four years. You will need to get a BER survey (around €250) but you’ll need one if you ever want to sell up anyway.
Breaking contract
Breaking a fixed-rate contract was usually a big no-no, but Trevor Grant says most banks are not charging for this, and even where they do it’s at little or no cost, so it is, at least, worth asking the question.
Daragh Cassidy adds: “The ECB could hike rates to around 3pc next year, meaning the best rates may be well over 4pc. So today’s lower rates are something you don’t want to miss.”
The process
It’s taking “a good bit longer than usual”, Mr Cassidy admits, to switch home loan. “Up to three or four months in many cases,” he says.
Using a broker can cut out some of the hassle, not to mention the endless brick-batting with the bank. They’ll also have the inside track on who’s taking the longest and which banks to avoid.”
How to switch your mortgage
Making the switch takes effort, but good preparation is key.
Assess your loan-to-value ratio. This is absolutely key for the bank as it tells them how much risk they’re taking on. They offer better rates for lower LTVs. To calculate yours, divide the outstanding mortgage (ask your current lender) by the house’s value (check Property Price Register) and multiply by 100. A house worth €400,000 with a mortgage of €250,000 has a LTV of 62.5pc. Anything under 80pc puts you in the market for value.
If you think your BER rating may be A or B, get a survey done. You can find registered surveyors on www.seai.ie. The cert could get you a 0.5pc discount or more.
Compare rates with other lenders using independent sites
Compare fixed rates within your own bank – it’s easier to move within than leave. Call them up and ask can you switch? Bear in mind, some rates may be reserved for new customers only.
Compare rates with other lenders using independent sites like www.ccpc.ie or www.bonkers.ie, or ask a broker.
They may be free, by operating on fixed commission from lenders, but avoid ‘tied’ brokers who only act for one bank.
Gather your paperwork. You’ll need six months of bank statements (or three years of accounts if self employed), payslips, employer’s letter of permanency, and evidence of savings. They want to assess your ability to meet repayments, but switchers are to some extent ‘pre-approved’ if they’re already repaying a mortgage.
