Revolution takes hold in mortgage market

It's that time of year again, when the property market takes a breather and mortgage applications slow down. It is also the point at which we can take stock and wonder at how far we have come in the course of yet another frantic year of buying, selling and taking on gigantic housing debts.

This year has been a year of revolution in the mortgage market, with lender, First Active, arguably the one to credit with much of the shift. First Active was the first, in July, to launch 100 per cent mortgages in the Republic.

Whether these have revolutionised the market or not, they have certainly attracted comment. The detractors say they remove all sense of reason from an already-toppy housing market. Others argue that they are used wisely and open doors to frustrated homebuyers. So far, there is no clear result to the argument, but truth will out eventually. Meantime, we must content ourselves with bits and pieces of research on the area.

Soon after the 100 per cent loans were launched (and then copied by a number of other lenders), one study told us that first-time buyers were now less likely to save for their house purchases than before. Findings like this must have caused a shiver to travel down the spine of the Central Bank, which has voiced concerns about how exposed Irish mortgage-holders might be if interest rates moved higher.

In May, the Central Bank said it was possible that mortgage rates would double over the next few years. Its worry was that a large number of mortgage-holders have become so used to low rates that they might not be aware that they could rise at all.

We have also seen a few product innovations beyond the 100 per cent mortgage. In January, the new owner of NIB, Danske, said it would follow First Active and launch its own current account mortgage. This product suits those who keep healthy sums in their current accounts and use these to offset their outstanding mortgage balances, thus making interest payments lower. Ideas like this will always be welcome.

This year also saw a trend towards mortgage switching, with EBS joining Ulster Bank in October in offering to pay the legal fees for moving a homeloan.

Other welcome innovations saw the arrival of lenders, such as Start and GE, which offer mortgages to people who have poor credit histories. The catch, of course, is that the interest rates that apply will be higher than normal.

It was also nice, over the year, to see that more and more borrowers are getting into the idea of trackers: loans that guarantee to stay within a fixed margin of euro-zone interest rates.

Speaking of which (and returning to the Central Bank's concerns), it will become clear at some stage today whether or not the European Central Bank has raised interest rates for the euro-zone. A rate increase is what most people expect, with consensus pointing to a quarter-point percentage hike. If this happens and you have a tracker mortgage, this will mean that your mortgage interest rate will go up by the same margin within a pre-agreed period of time. If you are on a variable rate, you will almost certainly also be facing an increase, but the extent and timing of it will be less certain. Finally, if your mortgage is fixed, you will feel no effects at all.