Fixed rate mortgage price war escalates

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Several banks are now offering 10-year fixed rate mortgages as a sign of moving away from variable rates, writes John Hearn.

Last week, Ulster Bank introduced a five-year fixed mortgage rate of 2.2%, which is the lowest fixed rate available over this period in Ireland.

The rate will be available to first-time buyers, movers and money changers who take out a mortgage of €300,000 or more and have at least 20% down payment or 20% equity in their home.

Daragh Cassidy of independent price comparison and price change site Bonkers says that if your mortgage is less than €300,000, or you only have a 10% deposit, you’ll have to settle for the other fixed rates slightly higher from Ulster Bank, but these are still very competitive. For example, Ulster Bank also offers a two-year fixed rate of 2.30% and a five-year fixed rate of 2.60%.

He also says that despite this announcement, not to mention recent mortgage rate cuts from other banks, mortgage customers in Ireland are still paying some of the highest rates in the eurozone. The average rate for a new mortgage issued here in November was 2.90% – some distance above the 1.37%, which, believe it or not, is the average in Europe.

“Ulster Bank has also become the latest lender to offer Irish mortgage holders the choice of a 10-year fixed rate,” says Cassidy. “They offer a market-leading 10-year rate of 3.15% for first-time buyers and 2.95% for movers and changers or first-time buyers with a 20% down payment. Slightly higher rates will apply, however, if someone requests an exemption from the Central Bank’s income lending rules.

Until recently, very few lenders offered the option of a fixed rate for more than seven years. Ulster Bank now joins Haven, KBC, Bank of Ireland and AIB in offering mortgage customers the choice of a 10-year fixed rate

Central Bank figures published in the first days of the year confirm that the mortgage market continues to move from variable rates to fixed rates.

The November Money and Banking Bulletin reported that variable rate mortgages for primary residential homes fell by 1.2 billion euros in the third quarter of last year, while fixed rate mortgages of the same category increased by 2 billion euros. This is the largest quarterly increase in fixed rate mortgages since the start of the series. Joey Sheahan is Credit Manager at MyMortgages.ie. He thinks this could be the year of fixed rate mortgages in Ireland.

These numbers lend weight to our own observation that more and more mortgage holders are recognizing the value of fixed rates. They provide certainty of repayments for the term of the fixed rate and often provide borrowers with peace of mind regarding mortgage affordability and budgeting. Banks have also started to focus more on their fixed rate offerings.

He says it’s now possible to get three- and five-year 2.5% fixed rate loans for homes with A and B energy ratings. So while we may not get the same value as our European neighbours, rates are at least moving in the right direction. The bad news, however, is that when it comes to mortgages, we’re not really as knowledgeable as we should be.

The Economic and Social Research Institute (ESRI) has just published the results of an experiment funded by the Competition and Consumer Protection Commission. A sample of mortgage holders answered questions about how mortgages work and what they thought they should do if they wanted to switch.

The results showed that mortgage holders tend to be seduced by cashback offers that ultimately offer very poor value for money.

On average, consumers preferred the €2,200 cashback over a 0.4% higher annual rate. However, a better mortgage rate is exponentially better than any of the heavily bank-pushed cashback offers.

The commission has calculated that for an average mortgage, opting for the rate of €2,200 instead of the rate of 0.4% is equivalent to taking out a loan of €2,200 at 24% interest.

After reading the official advice, consumers placed much more emphasis on the annual percentage rates and the long-term savings they could achieve. They also became more confident about picking good deals. The experience therefore supports new regulations introduced in 2019, which require lenders to direct consumers to such advice.

The experience also revealed potentially serious misunderstandings. When asked what they would need to do to change, only a third of mortgage holders realized they would need a lawyer and only a quarter knew they would need to have the mortgage reassessed. property. These are usually the two biggest switching costs.

Additionally, most consumers did not understand one or more fundamental aspects of mortgage products. They didn’t know how repayments related to the cost and length of a mortgage, the implications of paying interest only, or the extent of the debt.

The commission’s Fergal O’Leary said that for most consumers, taking out a mortgage is the biggest financial commitment they’ve ever made.

“It is therefore crucial that they fully understand the terms and conditions as well as the total long-term cost of the mortgage they choose. The research clearly shows that it is worth taking the time to review the independent information, including the mortgage comparison tool on ccpc.ie.

“This is the case for first-time buyers, but also for many consumers who could save on their mortgage by switching. Taking a few minutes to check out ccpc.ie can help consumers cut down on advertising material and enable them to get the best to meet their needs.

Trevor Grant from the Association of Irish Mortgage Advisors suggests this research demonstrates the importance of getting expert advice before making any financial decisions

“In certain circumstances, cashback offers make sense to consumers. However, some people may be unduly swayed by the immediate promise of free money, even if it means they may have to pay more upfront for their mortgage. Often these funds are for the purchase of appliances or furniture and although this is perfectly acceptable, it is essential that the borrower understands the longer term implications of their choice of mortgage lender.

Another thing worth considering if you’re reconsidering a first mortgage is the government’s purchase assistance program.

This is a government tax refund program designed to help first-time buyers obtain the deposit necessary to purchase a newly built home.

“The program is designed to help first-time buyers acquire the deposit necessary to purchase a new home. Another aim of the scheme is to incentivize developers to build more houses and flats,” says Bonkers.ie’s Daragh Cassidy.

The maximum tax refund is 5% of the value of the property or €20,000. The one who is the lowest. The discount is only available on properties with a value of €500,000 or less.

“This means that if you buy a property for €400,000, you can claim the maximum reimbursement of €20,000. But if you buy a house for €500,000, the aid will be capped at €20,000,” he explains.

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