Mortgage cash deals require care and research

NEWS of the Government’s plans to help first-time buyers have received a cautious welcome from the property industry, although there have been suggestions that the move is too narrowly focused in terms of buyer and house type.
Mortgage cash deals require care and research

But whether buyers qualify under the help-to-buy scheme or not, there are still plenty of offers around from the major banks. The challenge for potential homeowners is to analyse both the rates and sweeteners and ensure they are choosing the best product over the lifetime of the loan.

Most of Ireland’s banks are now offering substantial cash lump sums to new customers when they draw down a mortgage. EBS and Permanent TSB are offering 2% cashback on the value of a mortgage to first-time buyers, and Bank of Ireland recently announced it was increasing its 2% cashback offer to 3% for its current account customers.

Customers will receive 2% cashback if they draw down their mortgage before March 31, 2017, and a further 1% after five years into their mortgage. Ulster Bank is offering €1,500 upfront in cash.

I asked Mark Whelan of bonkers.ie about the true value of these offers.

“The Central Bank’s deposit requirement rules and historically high rents make these cashback offers very attractive to cash-strapped first-time buyers. However, prospective home owners should approach these incentives with great caution. In many cases, the benefit of up-front cash may be obliterated within just a few years by higher interest rates.”

Whelan provided an example of how potential buyers should analyse the deals. “Take the average Dublin mortgage of €280,000 over 30 years as an example. Currently, one of Ireland’s leading banks is offering 2% cashback and is charging an interest rate of 4.2% for an LTV of between 80% and 90%, which is the LTV category that most first-time buyers fall into.

“A first-time buyer will receive €5,600 back in cash upon drawdown and the cost of credit over the lifetime of the loan will be €208,308. Taking the €5,600 cashback away from the cost of credit gives a sum of €202,708.

“Another bank, which isn’t offering any cashback to first-time buyers, has a rate of 3.50% for borrowers with an LTV of over 80%. At this rate, the cost of credit over 30 years will be €169,552. Therefore, the cost of 2% cashback on a €280,000 loan over the course of 30 years may be as much as €33,156.”

Buyers needn’t be daunted by the calculations involved. A handy mortgage calculator is available at www.consumerhelp.ie. Fill in the amount, term and rate and it will calculate the projected cost of the loan.

Potential homeowners should assess all elements of the mortgage product. “It is vital that first-time buyers in particular consider the lifetime cost of a loan to avoid years of long-term repayment pain.”

It is not only first-time buyers being targeted with cashback offers; Ulster Bank and Bank of Ireland are also available to non first-time buyers. AIB are specifically targeting switchers with their mortgage cashback offer while KBC is currently offering €2,000 towards professional fees for all mortgage customers (switchers, movers, first time buyers and buy to let).

Based on a loan-to-value of greater than 80%, the variable rates on offer range from 3.5% from AIB to 4.5% from Bank of Ireland. That is quite a wide spread so buyers should calculate their repayments and total cost before committing to a lender.

Another option available is to fix the rate of your mortgage, for up to 10 years with some lenders. Traditionally, fixed rates have tended to be higher than variable, as buyers pay a premium for knowing exactly what there repayments will be for the fixed period. But at the moment the fixed rates on offer are very similar to the variable rates. If you fix for five years (again based on on an LTV>80%), you can get 3.55% from Bank of Ireland, rising to 4.15% with Permanent TSB.

One of the downsides of fixing your rate is that should your bank decide to drop their variable rates, you won’t benefit.

DEAL OF THE WEEK

Savvy shoppers are already working their way through Christmas lists and retailers are keen to help with early offers on toys and gifts. This week it’s the turn of German giant Aldi, whose ‘Big Aldi Toy Event’ hits stores nationwide from Thursday, October 27.

Young children are the focus of the event, with many of the toys suitable for the 3+ age group.

Budding chefs will be well-catered for with the Large Red Wooden Kitchen on sale at €44.99. This bright and colourful kitchen features a microwave, oven, hobs, chalk board and sink. There is also shelving, an educational clock, a tap and a workspace for them to create culinary masterpieces. The range also includes a wooden fire station (€24.99), Wooden Market Stall (€54.99) and a rocking caterpillar/horse (€44.99).

The range also includes many smaller gifts perfect for stocking-fillers — including books, puzzles and soft toys.

Check out the full range at www.aldi.ie.

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