How mortgage holders can save €4,000-plus per annum by switching to fixed-rate products

Mortgage interest rates have just hit the floor with some lenders, and chances are they won’t be going any lower.

istorically, they’re at rock bottom. But the most important message for home buyers and potential switchers looking to lock into these low rates as we enter 2022 is this: don’t panic! Don’t grab the first fixed-rate product you can get. You have more than enough time before rates start to rise again. Most estimates are that it will be the end of the year or beyond before the hikes start.

How much is your House worth in 2022?

The very lowest rate on offer is 1.95pc. This is extraordinary. The only time something like this has happened in recent memory was when lenders offered tracker mortgages with unfeasibly low interest rates; these were withdrawn from the market in 2008.

Rates were reduced throughout 2021, mostly by emerging challengers in the Irish loan market. The traditional players have tended to keep theirs stubbornly high. The average new mortgage rate for new loans here in October was 2.73pc compared to the Euro area average of 1.28pc. The lowest fixed rate now available here is 1.95pc and lowest variable is at 2.45pc.

We know inflation is a threat. The general cost of living has increased, all our big ticket household costs are rising or about to rise. And eventually interest rates will rise too.

So it means that 2022 will be the year of the big Irish mortgage fixed-rate lock-in. Home buyers and switchers will be looking to secure fixed-rate products to shield themselves against the interest rate rises looming on the horizon. Currently, 83pc of all new mortgage lending is for fixed-rate products, with most short-tailed in nature and under five years in length.

But again, don’t panic. Take time to shop around — there are five-year fixed rates being offered by some lenders at 3pc, while others are offering 2.2pc. That’s a big difference.

Make 2022 the year in which you take time to figure out the right fixed-rate mortgage for you with the lowest rate you can get.

Not only do you need to think about locking in, you also need to consider how long it would suit you to lock in for. For the first time in recent memory, much longer lock-in terms are actually looking quite attractive.

Some lenders are offering the same interest rate for five, seven and 10 years fixed as for three. That’s great because, historically, terms of five years and over have come with unfeasibly high rates attached.

And if you want to go the whole hog, by utilising an 80pc loan-to -value ratio you can lock in at 2.9pc for 20 years or 25 years. Historically, that too is unprecedented. Obviously, it’s a very big undertaking. But you do need to at least consider these options and whether they suit your circumstances and plans. At least take a good look at what’s on offer with those much longer terms.

Home buyers were right to fear long lock-in terms in the past, because of unfathomable penalty break clauses which could cost you dearly.

But aside from the attractive low rates, the other big differences are that we now have long-term products from some lenders which very clearly define what the penalties will be from the onset (and they aren’t too harsh).

And with longer terms from lenders like Avant and Finance Ireland, you are also permitted to move house AND take your rate with you without any penalty at all, so long as you keep your mortgage with the same lender.

Another change we’re likely to see in 2022 is some flexibility on the much criticised six-month approval expiries which have been causing headaches for home buyers in a market starved of stock.

House hunters often spend more than six months looking, being outbid again and again, and then need to go back to renew approval. Bank of Ireland is already offering 12-month approval terms, and more lenders are likely to follow suit this year to give more breathing space for home hunters.

The past year has actually seen a surge in mortgage approvals — the highest numbers of mortgage drawdowns since the crash — and we’ve also seen record numbers of mortgage holders opting to switch. This reflected a recovery in the market from the Covid-19 shock of 2020 and the demand that exists in the market, fuelled by continuing short supply of property.

Mortgage completions stand at around €10bn for 2021, a figure which is expected to grow by 20pc this year when availability of loans is expected to improve further.

Most purchasers will have had a maximum loan-to-value of 90pc, but with last year’s increases factored in, this will now be less than 80pc, entitling them to rates which are generally 0.5pc better than those on market. So more good news there.

This year also sees the continued rollout of ‘green rates’ introduced last year: loans with rates of 2pc on up to 90pc loan-to-value for BER B3+ rated homes. That’s a good package for first timers, particularly when it’s combined with the benefits of the Help To Buy scheme.

Purchasers in 2022 also need to look beyond the pillar banks to new players such as Avant Money, ICS Mortgages and Finance Ireland. They are offering not only lower rates but more innovative products such as longer-term fixed rates, capped early-break penalties on fixed rates and overpayment options.

And we could be seeing even more competition in 2022 with more new names likely to enter the arena. Future arrivals expected include MoCo, First Citizen, and perhaps even Revolut, N26 or some of the digital players.

While small, the Irish mortgage market is still attractive to new entrants who can operate a leaner model and who do not have costly back books.

Those who already have a mortgage have been waking up to the huge financial benefit of switching and 2021 saw the highest number of mortgage switchers on record.

The exit of Ulster Bank and sale of its loan book to PTSB, along with the proposed transfer of KBC’s loan book to BOI, will increase switcher numbers further in 2022.

Both BOI and PTSB have some of the highest business rates on the market. The assignment of loans to these higher interest rate lenders should be the catalyst for mortgage holders to review rates and options.

We are also likely to see consumers continue to turn to brokers in greater numbers.

If you’re hoping for one of the limited number of exceptions that will allow you to borrow more than is permitted by the Central Bank’s mortgage lending rules, then it is best to get market-based advice from a broker — or at least discuss your options with more than one lender. 

Broker market share has grown from 17pc of new lending in 2015 to 41pc of new lending in 2021. This is expected to hit 50pc by 2024.

With the Irish consumer paying over double that of their Euro zone counterparts, both new applicants and current mortgage holders now need to assess the whole of the market when looking to switch. The bottom line is that there are really substantial savings to be made this year.

Martina Hennessy is managing director of doddl.ie 

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