SWITCHING mortgage provider isn’t half as onerous as securing a home loan in the first place — it could save you plenty as John Hearne reports.
At some point in the coming year, KBC’s 40,000 plus mortgage holders will see the transfer of their loan to the Bank of Ireland as KBC completes its exit of the Irish market.
Advisers at MyMortgages.ie are warning those on KBC fixed rates that they could see their repayments increase by thousands of euros if they move to Bank of Ireland once their current fixed rate term is up.
Similarly, if KBC’s variable rate mortgage holders move to BoI, their new lender will be free to increase their variable rate at any time.
Mortgage holders could avoid these increases by shopping the market and switching lender. According to the broker, they could make savings of €2,000 or more over a three-year term.
Joey Sheahan is head of credit with MyMortgages.ie and is the author of The Mortgage Coach. He says that his company received a raft of calls from worried mortgage holders when KBC first announced its plans to leave Ireland.
“We have assured them that consumer protection laws mean that their current agreement will have to be honoured by BoI, but that once their fixed rate term ends, they could face much higher interest rates and repayments if they remain with BoI — which is currently not the most competitive lender in the market.”
“Those on variable rates are in a more precarious position as BoI is free to increase their rate as soon as they move across and, while this may change, BoI is currently offering some of the highest standard variable rates on the market.”
This is why Mr Sheahan and his colleagues are telling people that they should really use this time to conduct a full mortgage review with a view to switching to the best value provider.
While Ireland continues to suffer some of the highest mortgage rates in Europe, these rates are exceptionally low by historical standards.
Potential mortgage switchers will also benefit from the recent increases in property prices, which have delivered improved loan-to-value ratios, and should ensure that most people qualify for better terms across all lenders.
MyMortgages have run the numbers for KBC customers.
“We’ve just taken a couple of average scenarios, which would be pretty typical of many of the mortgage holders on the KBC loan book,” Mr Sheahan said. “The figures speak for themselves. You could either pay almost €1,000 more a year or you could save €1,000. It all depends on whether you shop the market and switch lender.’
Nor, he points out, is there much of a need to wait. The KBC sale may not be going through for a few months, but mortgage holders are free to review their contract now.
Even if your rate term is not yet up, the option to switch is still open to you and in so many cases, it will make financial sense to do so.
Mr Sheahan points out too that switching mortgage provider isn’t half as onerous as securing a mortgage in the first place.
“It’s very unlike the initial property purchase process, because you are not dependent on the sale of another home going through, or you are not wedded to deadlines to move out of a rental property etc.”
It’s interesting to note that according to just-released data from the Banking and Payments Federation, while mortgage approvals in other categories fell in the year to October, switcher mortgages bucked this trend. Approvals rose 24.8% year on year. This is a huge jump.
“We’d be confident that this is a trend we’ll see continue into next year,” says Mr Sheahan. “The switching movement is catching on.”
“And this time of the year really is a great time to switch. While the mortgage market is busy, we don’t usually experience the same volumes over the next few weeks that we’d see in the first few weeks of the new year.
“It means that if people take action now, the entire process could be complete in a matter of weeks, so mortgage holders could benefit from these new savings just in time to help ease the pain of the post-Christmas financial hangover that many households experience.”
The savings potential from switching mortgage provider dwarf the savings that can be made from any other kind of service switch.
A borrower — and we’re not just talking about KBC borrowers now — could save €56,000 in interest over the life of their mortgage by reducing their rate from 2.95% to 1.95%. That’s based on a €300,000 loan at a 60% loan-to-value over 30 years.
As Daragh Cassidy of independent switching site bonkers.ie points out, every bank has its own set of criteria for accepting mortgage switchers. If your financial circumstances have changed for the worse since you qualified for your initial mortgage, you may have problems switching.
“However,” he says, “If you look to switch mortgage and don’t get accepted, your current lender won’t treat you any differently. So there’s no need to worry if you get rejected. Nothing ventured, nothing gained.”
In general, before switching, you must consider five key factors:
First, the outstanding balance on your mortgage. The minimum amount accepted by Irish lenders for someone switching is between €30,000 and €40,000. Anything less and the bank will feel it won’t be worth their while.
Second, whether you have a fixed-rate mortgage with your current lender. You may be charged a penalty fee for switching out of a fixed-rate mortgage early, so you may need to wait until the end of the term before you consider switching.
However, sometimes the penalty for breaking a fixed rate may be far less than the savings you’d make by switching mortgage lender, so it’s important to do the maths.
Third, your credit rating. You must still have a good credit rating in order to switch. A credit check will be carried out by the lender you’re trying to switch to and if you’ve taken out new loans or have used credit cards and had difficulties repaying these, you may have problems switching.
It also matters how much equity is in your home. You may have difficulty switching if you are in negative equity or own less than 20%. However, each lender will assess your switch on a case-by-case basis.
Finally, the bank will also look at the term remaining on your mortgage. You may not be able to switch if you only have a few years remaining as again, the bank may feel it won’t be worth the time.
Most mortgage lenders also provide cash bonuses for switchers who successfully move loan but don’t allow yourself to be swayed by these inducements alone.
Because you’re talking about such large amounts of money over such long time periods, a difference of only a few tenths of one percent in the rate can have a substantial impact on how much you pay over the life of the loan. Watch the rate, not the introductory bonus.