More and more people are now taking out fixed-rate mortgages in the belief that the rates currently on offer may be the cheapest available for some time.
Most of the lenders are reporting large numbers of applications for fixed-rate loans, although, for new borrowers, this is still mostly in the one-year/two-year categories.
Fixed rates are now generally under 5 per cent and the belief is that even if they fall, they can hardly fall much further.
At the moment, the main inter-bank rate is around 2.5 per cent and there is a possibility that it will fall further. Because of poor growth, and perhaps even recession, in some of the core Continental countries the European Central Bank may be persuaded to cut rates again. But even if that happens, the inter-bank rate is unlikely to fall below 2 per cent.
On the other hand, some argue that the German and Italian economies, which have been the poor performers, are now on the verge of picking up. If that proves true over the coming months, there may be no further rate cuts.
Generally, fixed rates move before variable rates. This is because they are based on longer term prices in the money markets or where the market expects interest rates to be in, say, two or five years time. Once the market decides that the next move from the ECB is up, the longer term fixed rates could move up quite quickly.
However, many borrowers are also waiting for cuts which could come from greater competition. The Irish lenders take a far larger margin than most of their counterparts across Europe and, with competition, rates may be forced down. This would be hastened should a Continental or UK lender enter the market here.
There are also moves to introduce an Irish mortgage bond which would allow lenders access to cheaper funds, thus weakening the link between what is paid to savers and taken from borrowers.
Most borrowers are opting for fixed rates, with about half opting for one-year terms. Large numbers also prefer two-year terms, with fewer going for three-year and five-year terms. Fewer again tend to opt for 10-year and 20-year loans.
But, according to Bank of Ireland, the three-year and five-year loans are actually a better option than the one year. According to a spokesman, fixed rates are now at the bottom: "If anything, they will begin to rise slowly, so the three and five-year offers are the most attractive at the moment." An Irish Permanent spokesman also confirmed more existing customers are beginning to look at the medium and long term with an increasing belief that interest rates will not drop significantly.
New business is still primarily focused on one and two-year fixes of the discounted variable but existing customers are increasingly opting for five-year loans, he said. First Active is also finding that large numbers of new borrowers are opting for fixed rates, although, unusually, its four-year product is proving very popular. It offers a low start of 3.99 per cent in the first year, followed by 4.95 per cent in years two to four. One important thing to remember, of course, when considering a fixed-rate loan is what is likely to happen to you over that time. All the lenders impose large penalties on borrowers opting out of fixed rates, so anyone with a likely large bonus, inheritance or other lump sum on the way may want to think twice. Most of the loans are portable so you can take them to a new property so long as a mortgage is for the same amount or more.
But on the other side, they also offer considerable peace of mind, particularly to those who may be stretched. One option which most lenders allow is to split your loan - perhaps half could be put on a longer term fix, with the other half remaining variable. This can provide a flexibility to suit most people's circumstances.
At the moment the cheapest two-year fixes are available from EBS at 4.5 per cent and from First Active at 4.75 per cent. Others have cheaper rates but they are only available for new borrowers and not for their existing customers.
The cheapest for the three-year offer are EBS at 4.75 per cent and AIB at 4.85 per cent.
For five-year fixed the cheapest are AIB at 4.85 per cent, Bank of Ireland with 4.75 per cent in the first year and 5 per cent in years two to five, EBS and Ulster Bank at 5 per cent.
