If you bought your first home in the last five years, then you could save money by switching your mortgage.
Interest rate hikes, green mortgages, property price increases – there have been big changes since you first borrowed. The right switch now could save relatively recent homeowners more than €20,000 by 2029.
First-time buyers who took out a fixed-rate mortgage in 2020, 2021 and early 2022 have been spared some nail biting and some money. This is because the European Central Bank (ECB) made 10 consecutive interest hikes between July 2022 and July 2023, increasing its rate by 4.5 percentage points over the period.
Tracker mortgage holders, the first-time buyers of the Celtic Tiger, took the biggest hit as their rate was directly pegged to the ECB rate.
For everyone else, Irish banks increased interest rates by about 1.5 percentage points over the period, driving up repayments for anyone who had not fixed or whose fixed-rate term was coming to an end.
Like Snow White waking from a sleep, about 48,000 households will this year and next roll off low fixed-rate mortgages, set in 2021 and 2022, and they face increased repayments.
“They are potentially rolling off rates as low as 2.6 per cent or 2.8 per cent,” Margaret Barrett, of Mortgage Navigators, says. “Some will be moving to potentially 4.15 per cent with their current lender.”
Martina Hennessy of Doddl.ie notes that while mortgages increased between 2022 and the start of 2024, lenders then dropped rates by more than 1 per cent. The days of rates beginning with a “2″ are gone, however, she says. Rates now range from 3 per cent to 6.15 per cent.
Take someone with €250,000 outstanding on their mortgage over 25 years – a move from 2.6 per cent to 4.15 per cent will add €206 a month to their mortgage repayment, or €2,472 a year from their after-tax income. The cost of credit over the lifetime of the mortgage will increase by €61,860.
While banks must tell customers coming off a fixed rate what their best alternative rate is, they won’t tell you if there is a better rate with another bank. Some homeowners coming off a fixed rate now will most certainly get a better deal by switching.
Here are three types of mortgage holders who stand to benefit:
‘The lucky generals’
If you bought your house in the last five years, it has more than likely increased in value. This positions you for a cheaper mortgage. Even those buyers who haven’t spent a cent on an extension, “done” the garden or converted the attic have become “lucky generals”.
National property price inflation was 9.7 per cent in the year to the end of last October, according to the most recent residential property price figures. Dublin prices rose by 10.4 per cent.
This increase builds on others over the past five years. According to CSO figures, prices nationally were 40.5 per cent higher in October than at the end of 2019, and were 33.9 per cent higher in Dublin.
Take a real-world example such as a typical three-bedroom, newly built first-time buyer home like some of those at Glenheron in Greystones, Co Wicklow, bought for €388,000 at the end of 2019.
Imagine the owner borrowed 90 per cent of the value of the home, or €350,000, on a five-year fixed rate. So their “loan-to-value” (LTV) ratio, the ratio of how much they owed on their mortgage to how much their house was worth, was 90 per cent then.
Five years later, at the end of 2024, identical neighbouring properties sold for €580,000, an increase of €192,000 on the initial purchase price. The owners have amassed significant equity in their home through luck. This can be great news for their mortgage if they switch.
Even those who shift to 80 per cent loan-to-value are likely to be eligible for a lower rate
Their mortgage repayments over five years would have reduced their loan-to-value ratio to some degree, but the increase in property prices alone has turbocharged this down to about 60 per cent LTV. This qualifies them for a far more favourable lending rate.
“Even those who shift from 90 per cent loan-to-value to 80 per cent are likely to be eligible for a lower rate,” Hennessy says. “Rates at the 80 per cent loan-to-value bracket are up to 0.55 per cent lower than 90 per cent finance,” she says.
The Property Price Register will show you if homes in your area, similar to yours, have increased in value. Then use an online mortgage comparison tool or call a broker to check if the uplift will qualify you for a better interest rate.
‘The Green Gables’
If you took out your mortgage before green rates were a thing – it’s a category of mortgage that didn’t really exist five years ago – or you didn’t avail of one, you are missing out on savings. When it comes to switching, your energy rating can be a trump card.
The first green mortgage rate launched in 2019 by Bank of Ireland was for mortgage applicants whose property had an building energy rating (Ber) of B3 or higher. AIB followed suit, with EBS adding a green rate in 2022.
“If you have a Ber of A or B, then green rates should be top of your list as they are the lowest rates on the market and are available to purchasers and switchers,” Hennessy says.
In all, 95 per cent of the homes built between 2015 and 2019 have an A rating, and 99 per cent of those built between 2020 and 2024 have an A rating, according to CSO data.
Barrett gives the example of a first-time buyer whose mortgage is rolling off a five-year fixed rate of 2.6 per cent. They have an outstanding mortgage balance of €250,000 over a 25-year term. Yes, their mortgage repayment is going to increase, but a green rate will reduce the pain.
If they roll on to the 4.15 per cent “standard” rate offered by their lender, their monthly repayment will jump to €1,430.
But their A-rated home will qualify for a 3.1 per cent green mortgage with Bank of Ireland if they fix for four years. With this rate, their monthly repayment will be €232 lower. The total saving on repayments and interest by the end of the fixed-rate term in 2029 will be €21,354, Barrett says.
“They see the monthly savings, but they forget about the interest at the back of it; it’s the interest that is a good chunk of the repayment over the lifetime of the mortgage,” she says.
You do not have to have an A-rated home to qualify for a green rate, either.
Bank of Ireland is offering a 3.2 per cent rate for C-rated homes fixing for four years, and 3.25 for D-rated homes. This applies to “high-value mortgages” of €250,000 or more with maximum loan-to-value of 90 per cent. Recent MyHome.ie figures show the average mortgage is now €300,000, meaning most are likely to meet that requirement.
‘The punch drunk’
For many people, when you get your first mortgage, you are almost not interested in the term or the rate, you just want the house, Barrett says. Just 27 per cent of mortgage holders research rates, according to Banking and Payments Federation Ireland figures.
Punch drunk from saving, househunting, bidding and the labyrinthine conveyancing process, some buyers are understandably too weary to shop around on rates.
“There are definitely customers who got themselves to mortgage approval and a mortgage drawdown with a rate that wasn’t the most competitive on the market,” she says.
Do not let flashbacks to that first mortgage application process stop you from doing the right thing now, Hennessy says. The switcher process is less onerous.
Getting a better rate with your own bank is the easiest route – so be sure to ask if your Ber rating or the increased value of your property qualifies you.
Those switching banks for a better rate will need to provide six months of current account statements, including Revolut statements, as well as payslips to verify income. A lender can check your mortgage and other debt repayment history on the Central Bank of Ireland’s Central Credit Register.
“It will only take two hours to complete a digital form and provide these e-statements,” Hennessy says. It’s not quite as easy as switching utilities, but the potential savings of tens of thousands of euro justifies the effort.
If you are switching lenders, you’ll have to pay solicitors’ fees and get a new formal house valuation too. This can amount to about €1,400. Seven lenders now offer cash back to switchers ranging from €1,500 to 2 per cent of your mortgage in cash. This is alluring and can cover the cost of switching, but make sure the interest rate stacks up before you sign.
If you can overpay a lump sum off the mortgage, this will have a significant impact on the interest paid over the term
Do not let talk about ECB rates going lower this year put you off switching now, Hennessy says. The ECB increased its rates by 4.5 percentage points in recent years, but Irish banks increased theirs by a more modest one to 1.5 percentage points. A lot of banks have now come down by 1 per cent, she says.
“It’s not that rates are going to go back down to the sub-2 per cent level, our new norm is in or around the low threes,” Hennessy says. “Over the last three years, this is the best time to be switching.”
While a more attractive interest rate will rightly be the main motivator for people switching mortgages, the best interest rate isn’t the only thing to consider. Check too if you will have the facility to overpay the mortgage or pay it off early should you want to.
On a fixed interest rate, some will offer a 10 per cent overpayment on your monthly direct debit, some will offer 10 per cent of the mortgage principal per year.
“A lender’s interest rate might be 0.1 or 0.2 per cent higher than another, but if you can overpay a lump sum off the mortgage, this will have a significant impact on the amount of interest paid over the term,” Barrett says.
Those in the early stages of their mortgage stand to save the most over its lifetime by prudent switching.
“You pay the most interest when the mortgage is at its highest, so the capital balance outstanding, the interest hits that every month. The key is to keep your interest rate as low as possible, as well as how much you borrow of course, to save on the cost of credit,” Hennessy says.
