The mortgage market: what to expect in 2021
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📈Mortgage interest rates
💡The benefits of mortgage switching
🤝The rise of the broker as more mortgage applicants choose market-based advice from mortgage platforms such as doddl
Benefits of using a doddl mortgage advisor
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The mortgage market is undergoing change with a noticeable surge in the numbers of mortgage approvals given in the last quarter of 2020 — October saw the highest monthly rate for over a decade.
This was largely driven by firsttime buyers who made up almost 60pc of both the total volume and value of approvals.
This increase in market activity looks set to continue this year, driven by a decline in Covid19 economic uncertainty, lower available interest rates and, ultimately, people’s desire to secure a home that may now also double as a workplace.
Low supply and an appetite for suitable housing with homeoffice potential has fuelled intensive market activity, which is set to continue this year, with estate agents forecasting a five per cent annual rise for 2021.
Another big change we’ve seen is the introduction of the first new bank to commence mortgage lending in Ireland for over 12 years — and this move has heralded a changing mortgage landscape that will shape the market in 2021. Avant Money announced the first subtwopercent rate in the market since trackers were available, a move which looks set to stimulate rate cuts, increased choice and longterm value to Irish consumers.
Applications for mortgage exceptions are expected to surge higher than ever before in January as lenders respond to pentup demand from borrowers in the aftermath of Covid19.
mortgage exceptions to Central Bank’s lending rules allow banks to lend more than 3.5 times a person’s income or to allow second or subsequent buyers to buy a home with a deposit that is less than 20 per cent of the purchase price.
Last April, exceptions were paused by many lenders due to the uncertainty in the market from Covid19. Many mortgage applicants have been holding out until now when the chance of obtaining an exception is stronger. Exceptions run on a calendar year basis, so the large majority will be processed at the start of the year, meaning borrowers need to hit the ground running by having uptodate paperwork to back up their applications and avoid any potential delays.
Given last year’s shelving of exceptions, we can expect that the opening three months of 2021 will see higher mortgage approval levels from this month on. As with years prior to 2020, the front loading of exceptions in the year tends to cause increased activity early on and a falling off as the year progresses.
But on the broader front, Central Bank macroprudential lending rules are expected to remain unchanged into 2021, despite much lobbying to have them altered.
The market is becoming increasingly dominated by fixed rates, which now make up three quarters of all new agreements. Currently, they are lower than variables and are attractive due to the security they offer over repayments for a fixed period. While longerterm fixed rates of seven and 10 years are available, the two, three and fiveyear fixed rates tend to be most popular.
The outlook is for these to remain lower for longer, so I would expect the majority of new mortgages will continue to be drawn down on fixed rates. However, once again, the arrival of Avant Money could change the way the Irish mortgage market is structured. Where lenders currently offer fixed rates tiered by loan to value of less than 60pc, 60 to 80pc or over 80pc, Avant Money discounts at every 10pc loantovalue interval.
This year will see further divergence to a twotiered structure as market rate reductions continue in fixed rates, but where lenders offer two per cent cashback at drawdown, rates are set to remain high. These lenders have by now already extended their offers, which are generally higher than noncashback, to the end of December 2021. Their rates continue to be higher as these lenders compete for market share based on shortterm cash incentives instead of rate.
As part of their requirements under Consumer Protection, and influenced by the impact of Covid19, mortgage lenders will continue to carry out checks at all stages of the application and completion process to ensure an applicant’s circumstances have not changed adversely. I expect lenders will continue to take a prudent approach
to lending with regard to sustainability of income for those whose employers are availing of the Employment Wage Subsidy Scheme (EWSS).
Irish homeowners are needlessly paying up to €135 per month on every €100,000 owed on a 25year mortgage. Taking a €300,000 mortgage, this would mean €405 in extra mortgage repayments per month or €4,860 a year by not switching lenders. The gap between the highest and lowest interest rates is the largest in over 12 years, with the lowest rate on the market now 1.95pc.
In its latest report on mortgage switching, the Central Bank highlighted that of those eligible to switch, 60pc could save over €10,000. We have seen a large increase in mortgage holders whose loan to value is 60pc or less and who were not previously active in the switching market. This cohort of mortgage holder has been awoken by the headline ratedrop below two per cent.
Another trend we’re seeing is a move toward brokers. Today 31pc of applicants are using a broker to secure their mortgage — an annual rise of four per cent. We expect to see broker market share continuing to increase as more consumers recognise the benefit of marketbased advice in an arena which is becoming more competitive based on rates.
Once again, the introduction of Avant Money as a brokeronly offering means there are now four mortgage lenders in Ireland who rely solely on the broker market as their core distribution channel. People are increasingly bypassing banks and realising that if they don’t use a broker to secure a mortgage, they are missing out on 40pc of the market, and therefore also the lowest available rate.
We expect the mortgage process, which has been very much paper based, to continue to move towards paperless applications with the adoption of Open Banking under payment services directive (PSD2). A very active housing market will continue to be driven by our changing priorities with regards to new lifestyle decisions for our living spaces. Working from home has concentrated people’s minds as to the suitability of their present homes for almost fulltime occupation.
This has resulted in major life decisions being made with migration out of Dublin and city locations and our homes also becoming our place of work.
Martina Hennessy is Managing Director of Doddl.ie.