How will I know if I should switch my mortgage?
The first step in deciding whether you need to switch mortgage is to understand if there is a financial benefit in doing so.
You will only ever switch if it makes financial sense to do so – take 15 minutes to review what is for most your largest financial commitment.
You can either switch your mortgage at your current mortgage balance or release equity to carry out home improvements, clear home improvement loans, education loans or other.
Lets clear up some common misconceptions about mortgage switching –
- The hassle factor
Let’s put it out there – switching your mortgage is not as easy as switching utilities but the benefits are HUGE making the time you take to gather documentation so worth it.
Plus by working with doddl our dedicated mortgage switching advisors and DMx digital application portal, exclusive to doddl clients, is tailored to making mortgage switching easier – we will be with you ever step of the way.
For most people their mortgage is their largest financial commitment and as such it should be the first thing you look to save on.
There is an application process involved – the bank needs to ensure the mortgage is still affordable.
Many lenders have introduced reduced document requirements making it easier for you to switch. The documents you need to provide should be readily accessible online such as e-statements and payslips.
Mortgage holders will recall the challenge of purchasing a home, with switching it is a transaction to move your mortgage from one lender to another to save on interest.
- It will cost me to switch – there are fees involved
New and enhanced switcher cashback offers are in place with 7 lenders in Ireland now offering cashback to mortgage switchers ranging from €1,500 to 2% of your mortgage back in cash (€350,k mortgage, €7,000 cashback lodged to your current account). The lowest rates including Green rates are now available with cashback.
- Mortgage rates are all the same – NOT true
Mortgage rates increased from 2022 to the start of 2024 but have since decreased. In 2024 we saw lenders drop rates by over 1pc. Rates range from 3pc to over 6.15pc and this huge gap has resulted in huge potential savings. Taking a €250,000 mortgage with 30 year term remaining you could save up to €5,628 per annum by switching.
Who can save Big by Switching?
With two new lenders entering the market in 2024 there are now 12 lenders in the market and more rates and products now than ever before. If you accept the first rate your bank has to offer you will miss out on what over 90pc of the market has to offer & chances are you will not get the best rate for your current circumstances.
Some areas where rates have dropped recently and you can achieve the largest savings are-
- Those with strong Building Energy ratings – 94% of all new build homes built since 2017 have an A rating, BER certs are valid for 10 years. If you have a BER of A or B then Green rates should be top of your list as they are the lowest rates on the market and available to purchasers and switchers.
- Those with strong loan to values of 80% or lower, where you have more than 20pc equity in your home are lower. Property price inflation (recent figures showing 10% y-o-y inflation) has meant that the value of homes has increased and you will have paid down some of your capital balance so your loan to value (mortgage divided by the value of your home) may now be lower than when you purchased your home. A homeowner who purchased a huge mid 2023 for €400,000 paying 10pc deposit, mortgage €360,000. Price inflation of 10pc bringing value to €440,000, mortgage now less than 80% based on repayments & price inflation. This could mean you are eligible for a much lower rate.
- Mortgages over €250,k are classed as ‘high value’ mortgages – some lenders tier their rates by mortgage level offering lower rates for mortgages of €250,000 or higher.
- Mortgages held with lenders who are higher than you can achieve on market – the huge disparity on rates from 3% to 6.15% means there are thousands of mortgage holders paying needless interest.
Want to switch and dont know where to start, start by asking our team if you can save by switching! Provide some initial details and one of our switcher specialists will call you back within 24 hours with options – Click here to start!
Why is there such a difference between mortgage interest rates in Ireland?
There is always a difference in rates across lenders, we don’t have a huge number of lenders and struggle with lack of competition but lenders generally focus on a key rate or two such as the pillar banks now with Green rates or EcoSaver products and others such as Avant Money tier rates by loan to value.
Funding costs influence rates but so does competition.
Latest research from the BPFI show that only 27pc of mortgage holders researched rates.
If as a Nation we remain poor at reviewing our mortgage rates and switching where it makes sense to do so then there is no great incentive for banks to cut rates.
Competition creates market discipline, by reviewing rates and switching where it makes sense to do so we will force the market to be more competitive.
What’s next for interest rates?
With three monetary policy meetings to come from the ECB in Q1 2025 it is anticipated that the ECB will continue their rate reduction path into early 2025. Any decrease in the ECB main refinancing rate leads to a direct decrease in a tracker mortgage holders interest rate and repayments.
For those who do not have a tracker mortgage it is important to differentiate that banks fund on money markets, via deposits or a combination of both.
The money market rate is the Euribor rate and the cost of funds for mortgage lenders in Ireland is linked to the Euribor rate and not the ECB rate.
Inflation, geopolitics, supply and demand are all factors that influence Euribor rates. The rate a bank will lend at depends on their cost of funds plus a margin on top of that to allow for costs such as operating costs, impairment and capital reserving costs.
Whether rates in Ireland will drop further is impacted by the Euribor rate. If we look at the 12-month Euribor which implies a floor of just over 2pc by December 2025 plus take an average margin added by lenders of 1-1.2pc this would mean rates would stand at just over 3pc.
Rates have dropped quite considerably in the second half of 2024 with cuts of up to 1pc from some of the pillar banks.
There is however a huge disparity on rates across the market with the lowest rates starting from 3pc but highest ranging to 6.15pc.
I would very much expect rates at the higher end of the market to drop into 2025 as funding costs become more favourable in particular for non bank lenders.
Competitive pressures also impact interest rates and I would expect that there will be some tweaks in rates as lenders hustle for market share in the New Year.
Those expecting rates to fall to the low levels pre 2022 may not see this come to pass. The sub 2pc rates are unlikely to return in the near future and the norm for interest rates in the short term is likely to be closer to the 3pc level.
Right now the most popular rates due to pricing are 3 and 4 year fixed rates providing security over repayments. No-one wants to pay more than they need to on their mortgage but equally mortgage holders like to have security over repayments so fixed rate is still preferred by the majority of mortgage holders.
Want to switch and dont know where to start, start by asking our team if you can save by switching! Provide some initial details and one of our switcher specialists will call you back within 24 hours with options – Click here to start!
