Switching your mortgage: Incentives are on the rise, so is now the time to change?

Interest rates look to be on the turn. While the European Central Bank (ECB) kept rates unchanged at a 22-year high of 4.5 per cent last month, the bank said that if inflation keeps moving down towards the 2 per cent target, “it would be appropriate to reduce the current level of monetary policy restriction”. In other words, cut rates.

For some 70,000 homeowners across the State, who may have rushed to fix during the period when rates were rising sharply but who may be rolling off those fixed rates in the coming months, could it be time to review their mortgages?

Martina Hennessy, chief executive of Doddl.ie, says she is now starting to see the impact of potential rate cuts “trickle through” to Irish mortgage rates.

... would borrowers be better to opt for a short-term fix now with a view to locking in if rates fall more significantly in line with expected European movements?

Last Friday, Avant Money, a subsidiary of Spanish bank Bankinter, which is to shortly enter the broader Irish banking market, cut rates on all its fixed rate mortgage products, and announced a new cash incentive for switchers.

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This follows a recent move by the AIB, which encompasses EBS as well as the broker arm Haven, that saw it substantially increase the incentive offered to switchers, presumably in the expectation that homeowners will be on the move with their loans.

But given that the better rates still tend to lock you in for longer terms, is now really the time to move? Or would borrowers be better to opt for a short-term fix now with a view to locking in if rates fall more significantly in line with expected European movements?

Avant and AIB

Until March of this year, Avant Money had offered an incentive of €2,000 to those looking to switch to it. Similarly, AIB offered a payment of €2,000 to cover the costs of switching to the banking group.

Switching does cost. You can expect to pay about €1,000-€1,500 for conveyancing, and other costs also typically apply, such as getting a valuation, which can cost about €200.

[ The outlook for interest rates is changing, so should Irish borrowers be worried? ]

Now both have increased their offerings. Avant Money is offering cashback equal to 1 per cent of the value of the mortgage – so €3,000 on a €300,000 mortgage, for example.

“This should encourage the many mortgage holders who are currently paying unnecessarily high rates to consider the benefits of switching to Avant Money’s new lower rate products,” says Brian Lande, head of mortgages at Avant Money.

AIB has increased the payment it offers to switchers to a flat €3,000.

If you’re borrowing from Haven, you might qualify for the greater €5,000 cashback payment available to new customers who take out a fixed-rate mortgage valued at €250,000 or more

“We know the mortgage process can seem a bit overwhelming. That’s why we’re making it easier for customers to switch to us by increasing the switcher payment, so customers have more support in covering their costs,” says Geraldine Casey, managing director of retail banking with AIB.

The bank is looking to target those who may have locked into one- or two-year fixed-rate deals in the recent past and are now coming off these rates.

[ Buyers of older homes pay thousands more per year in mortgage repayments ]

If you’re borrowing from Haven, you might qualify for the greater €5,000 cashback payment available to new customers who take out a fixed-rate mortgage valued at €250,000 or more. Those who don’t qualify for this can get the €3,000 offer.

EBS offers cashback of up to 3 per cent (2 per cent up front and a further 1 per cent after five years) on some of its mortgage products.

Other incentives

Avant Money and AIB are not the only lenders to incentivise switchers. With Bank of Ireland, you can get up to 3 per cent of the value of your mortgage back. As with EBS, 2 per cent is payable straight away with a further 1 per cent coming after in five years, subject to certain conditions being met. On a €300,000 mortgage, this means you will get €6,000 straight away, and a further €3,000 in due course.

Permanent TSB offers 2 per cent cashback at drawdown as well as 2 per cent back on your monthly repayments (the bank’s four-year fixed rate is excluded from this). On a €300,000 mortgage, PTSB says this would work out as a €6,000 payment up front, plus about €31 back each month.

It’s hard to argue that a cash payment upfront is unattractive. However, it doesn’t always lead to the best rates.

It is worth noting that the lowest rate currently on the market – Haven’s 3.45 per cent fixed for four years – is excluded from the cashback scheme (although you will qualify for the €3,000 contribution towards costs). Similarly, PTSB’s lowest rate of 3.9 per cent, also on its four-year fixed rate, doesn’t generate cashback.

To get the €5,000 cashback with Haven, for example, you’ll be giving up the 3.45 per cent rate, which is one percentage point lower than many of the other rates offered. This means higher monthly repayments and a greater interest bill overall over the life of your mortgage.

Switch and save

The other key question, incentives aside, is whether you should even be thinking about switching now.

Yes, there are savings to be had. As Hennessy notes, in the past month “the big banks have gone to war on their green offering” by cutting rates and introducing new terms.

“I think they’re looking at the market and saying, ‘we want to get more market share in the largest part of the market’ [ie first-time buyers],” says Hennessy.

Green mortgage rates are available if your building energy rating (Ber) is an A or a B. Rates start at 3.45 per cent at Haven and AIB, and 3.8 per cent at both PTSB and Bank of Ireland.

“As such, there is an opportunity for those existing mortgage holders who have a positive energy rating to switch and save significantly,” says Hennessy.

There could be downward pressure among the nonbank lenders, such as Finance Ireland and ICS Mortgages, which, due to their funding models, saw rates rise sharply to more than 7 per cent in some cases

As our table shows, someone coming off a one-year fixed rate with Bank of Ireland, of 4.35 per cent, could save €163 a month, or almost €2,000 a year, by moving to Haven’s 3.45 per cent four-year fixed rate.

The question is whether locking into a four-year rate in the current environment might be the best move; what if rates start to plummet from here?

Given that the three main pillar banks, AIB, Bank of Ireland and PTSB, have set out their stall over the last month, and Avant more recently cutting rates, Hennessy says “it may be some time before they move again but it could be expected that others may follow”.

There could be downward pressure among the nonbank lenders, such as Finance Ireland and ICS Mortgages, which, due to their funding models, saw rates rise sharply to more than 7 per cent in some cases.

“As the cost of funds decreases, you would hope to see that these lenders pass on rates,” says Hennessy.

Don’t expect any big cuts too soon, however, with banks more likely to tweak key rates, such as their green offerings, rather than slash rates across the board.

“It would take extraordinary economic circumstances to see rates drop to the sub-2 per cent level they were at in 2022,” says Hennessy, adding that cuts going forward are likely to be focused on certain products in areas lenders want to gain market share rather than across the board.

[ Interest rates may be coming down. That's not entirely good news in a frothy property market ]

Banks will argue that they didn’t apply the full whack of ECB rate hikes to customers, staying mute on the fact that they could afford to hold back given the weight of Irish residents’ money on demand deposit earning those same banks significant sums.

Moreover, even when the ECB does start to cut its rates, it is likely to happen more tentatively and slowly on the way down than it did on the way up.

While some tracker mortgage customers did make the jump back in 2021 or 2022 to lock into a fixed rate, relief may be on the way for those who stayed. But, as mentioned, it is likely to come via a series of smaller rate cuts by Frankfurt.

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