Why Ireland's mortgage switching war is just getting started

Early last month, AIB, EBS and Haven cut their green mortgage rates by 0.2 per cent. A couple of days later, Bank of Ireland launched a whole new set of fixed rates, all of which were based on the energy rating of the property rather than the loan-to-value rate. This was a first for the Irish market.

Then, at the end of last month, Avant Money cut its rates.

Now PTSB has joined the party by launching a suite of changes to its popular three-year mortgage rates. For a standard first-time buyer with a 10% deposit (or a loan-to-value ratio of 90%), PTSB’s three-year fixed rate has been cut by 0.60 percentage points to 4.50%. If you have a 20% deposit, the rate is being cut by 1.05 percentage points to 3.80%. And for those with a loan-to-value ratio of 60% or better, the rate is to be cut by no less than 1.05 per cent points to 3.70%.

In the wake of all of these changes, the Association of Irish Mortgage Advisors (AIMA) expects switching activity will pick up in the coming weeks and months.

Two things are expected to add to the competitive pressures that the banks are dealing with. More than 100,000 fixed-rate mortgages will expire in the coming twelve months. In addition, the ECB is expected to cut rates next month. AIMA believes that many borrowers will be keen to switch to better-value mortgages and are therefore likely to be enticed by switching incentives.

Trevor Grant, chairperson of AIMA says that while recent figures show that there was a steep drop in the number of mortgage switchers over the last year, this decline must be seen in the context of the surge in switching activity in 2022 and early 2023 as a result of the exit of Ulster Bank and KBC Bank from the Irish market.

“In addition, in 2023 we saw several interest rate increases which prevented customers from actively switching due to the relatively short timelines available to obtain better terms from a new lender or accept new terms from an existing one.”

“After a year of stalemate in the switching market without much incentive for people to switch, we believe the tide is turning. Now is a really good time to shop around to get a good deal. The expiry of tens of thousands of fixed-rate mortgages in the coming months will see more wanting to switch their mortgage in order to obtain the best terms available.”

He adds that the expected ECB rate cut this June could also encourage more to switch mortgages as borrowers are often more inclined to move lenders if rates are falling rather than rising.

Of course, there’s no certainty that lenders will pass on any ECB rate reductions to home loan customers. When central bank rates were rising, many Irish home loan rates did not rise to the same extent.

Mr Grant points out however that recent developments indicate a market primed to fight for every customer.

Last month, in addition to cutting rates, Avant Money launched its first-ever mortgage switching bonus – a cashback offer worth 1 per cent of the value of the mortgage drawn down.

AIB, EBS and Haven all said that they would increase their switching bonus from €2,000 to €3,000 from next week, as well as announcing the aforementioned cut in their green mortgage rates.

Then of course we have the first-of-a-kind from Bank of Ireland. Its EcoSaver Mortgage range offers discounted rates depending on your building energy rating (BER).

“We are already seeing people coming off fixed-rate mortgages and this will continue for the remainder of the year,” said Mr Grant. “Faced with a big jump in their monthly mortgage rates as their pre-2022 ultra-low fixed-rate mortgage deal expires, many will be looking to move to an alternative lender – or to secure the best possible deal with their existing lender.”

“There are some really good switching incentives out there now. Before being tempted by a switching bonus or incentive though, it’s crucial to compare the overall cost of other mortgages on the market — and to see if you would save more money in the long run by opting for a lender who offers a lower interest rate rather than a special offer.”

He points out that a lower interest rate on a mortgage may be more valuable than a bonus on a more expensive mortgage. While the bonus might put a few thousand into your back pocket initially, a cheaper mortgage could save you thousands over the terms of any new fixed rate agreed, and perhaps tens of thousands over the lifetime of your loan, depending on the amount borrowed and the mortgage term.

Interesting to note too that the Central Bank has said it’s concerned that mortgage incentives such as cashbacks and other bonuses could unduly distort a borrower’s choices in the short term, and hinder a borrower’s opportunity to choose the optimal mortgage for them based on the total cost of credit over the lifetime of the mortgage.

Trevor Grant again: “It’s important that consumers take their time navigating the various deals on offer and make sure to calculate which is best for them. It’s important to seek market-based advice from a mortgage broker as this will help you understand which overall deal will save you the most. While your own lender may offer you the best terms available, they are not obliged to advise you that better terms exist elsewhere.”

In its ongoing review of the Consumer Protection Code, the Central Bank has proposed a number of measures to help consumers better understand the impact of mortgage incentives – such as cashback – on the overall cost of their mortgage. These include a warning to customers to consider the impact of the incentive on the total cost of credit as well as additional disclosure requirements around the cost of a mortgage.

Mr Grant says that the AIMA would support any measures which will make it easier for consumers to select the best mortgage deals.