If you are in the mortgage market, there are four categories; first-time buyer, non-first time buyer, investor (buy-to-let), or a switcher. Different rules and criteria apply for each.
Most of the current market is made up of first-time buyers. They are in a privileged position over non-first timers as they only have to find a 10% deposit whilst for second-time buyers, it is 20% of the purchase price.
In addition, there is the Government’s Help To Buy Scheme which has limited use but may still assist some purchasers. I advise first time buyers to consider three banks — AIB for those opting to go for a variable rate mortgage, and KBC/Bank of Ireland (BOI) for those looking to fix.
AIB are currently offering variable rates at between 2.75%-3.15% depending on loan-to-values — how much of a deposit you can put down against the purchase price of the property — from the lower interest rate figure being 50% and higher rate relating to a 10% deposit.
KBC and Bank of Ireland on the other hand are offering three-year fixed rates at between 2.95% to 3.10%, and five years at 3% to 3.35%, whilst KBC have a market leading 10-year fixed rate 2.95% and 3.5%, again depending on the loan to value. Some banks, such as BoI, are offering up to 3% cashback for new mortgage customers which can come in handy.
What about the other banks and do cash back deals make a difference?
Consider interest rates first, cashback offers second. For example if you borrow €200,000 and you are shopping around for the best mortgage deal, and you get attracted to a 2% cashback offer of €4,000.
This might be interesting as you intend to use the money to buy a high spec TV and a sofa. However, the additional cost of a higher mortgage rate could end up costing you far more.
It is key to consider the interest rate and overall cost of credit over the lifetime of a loan first. This way, you can weed out some of the higher rates before getting distracted by eye-catching cashback offers. Once you have found the best two or three rates for your situation, only then should you consider the cash that is on offer.
There are other factors that may of course influence the decision as to which bank to use, such as the amount of a mortgage you can get. Typically this is restricted to three-and-a-half times joint earnings. There are some exceptions to this and this might be the bigger factor when deciding which bank to use and trump the rate or cash back offer.
For non first time buyers, the general same principles apply as above but for buy-to-lets, the rates are less favourable, typically being more than 1%-1.5% higher than other mortgage borrowers.
What in the case of existing mortgage owners who are locked into uncompetitive fixed rates? You can break free and get a better deal without having to pay a penalty or a very small one, despite what your bank may have told you when you took the fixed rate.
According to the Central Bank research, the average current fixed rate is at 3.13%, far from previous rates of 4% and 5%. The majority of people were unaware that recent changes meant that most banks now charge no breakage fee, or only a small one, when people break out of a fixed rate early.
Before you consider switching your mortgage to get a lower rate, you should approach your own bank and ask them for a lower rate. A lot of people are entitled to lower rates due to the increase in the price of their homes thus reducing their loan to values.
The number of people who have saved a fortune by just engaging with their bank is substantial. If you do switch, you should take account of the fact there will be legal costs and valuation fees involved — around €1,300 in total. But many lenders are offering cashback to new customers to help with switching costs. These are welcome changes, as mortgage interest rates in Ireland are more expensive than the eurozone average.
Check the rates, see what is available and find out how much you could stand to benefit by getting yourself a better one. There are good independent websites, such as the Competition and Consumer Protection Commission website (ccpc.ie) and it could be worth speaking to an independent mortgage advisor. Remember, it’s likely to be the most expensive purchase in your life.