Hassle of mortgage switch can pay off
Ulster Bank exit means its home loan borrowers have power to get better deal
WITH mortgage-holders reeling from Ulster Bank’s shocking (but not surprising) decision to withdraw from the Irish market, it is those borrowers who could benefit from the unwelcome catalyst.
Mortgage switching is rare. Even though it can bring huge financial benefits, the perceived hassle and cost puts many off. That means we’re stuck with legacy loans, often paying more than we should, because it’s easier than going elsewhere.
Ulster Bank’s hundreds of thousands of home loan borrowers may have no choice, and you can’t have missed the friendly ads in newspapers, or push notifications on social media from competitors looking for your business (all without mentioning the elephant in the room).
Existing mortgage holders have power. Not only are they ‘pre-approved’, they generally have a better loan-to-value (LTV) ratio than first-timers. Over 200,000 households are paying up to 4.5pc p.a. in interest rates – multiples of the lowest rate available (see panel). Indeed, you can expect a slew of interest rate reductions across competitors now, as they seek to cherry-pick the best borrowers.
But the most important think you can do now is nothing at all, says Martina Hennessey of Doddl.ie.
“The exit could take years and from a mortgage perspective, Ulster Bank are still accepting applications, and honouring loan offers, so there is no need for applicants to panic.
In the future, the bank could continue to own and hold the mortgages but contract out the servicing of those loans to a management company. “Alternatively, Ulster Bank could transfer or sell the loans to another financial institution – either one of the mainstream Irish banks or a private equity house”.
She adds: “Regardless of who buys an existing mortgage, the terms and conditions agreed between the bank and the customer in the mortgage contract continue and the full protections of the Consumer Protection code apply.”
So, nothing to see here?
Undoubtedly for some it’s best to sit tight, but for those who want to get ahead of the curve, there may be good reason to at least check out the competition.
To fix or not to fix
It is indeed the vexed question. Almost three-quarters of new loans are taken out on a fixedrate basis. Although fixes of up to 10 years are available, my advice would be stick to three or five years. Although the medium-term trend is for rates to remain very low, this could change over time. You don’t want to be caught out.
In fixing, the upside is you will potentially get a lower rate, especially where you have de-risked with a good LTV. You’ll be guaranteed your outgoings for the period with no nasty shocks. The downside is that if you attempt to pay down your loan (by inheritance, redundancy or savings) during the fixed term, you’ll be whacked for up to six months’ interest in penalty.
Non-bank lenders
Looking outside the traditional banking sphere can be beneficial.
Credit unions have stepped up to the plate with mortgage offerings and should be considered in the mix. Only the larger ones have the necessary reserves, but many smaller institutions are in a ‘common bond’, with an agreed policy to pool mortgage applications.
The likes of Avant Money (owned by Spain’s Bankinter) and Finance Ireland aren’t ‘retail’ banks, but also sell mortgages at competitive rates.
Brokers
I’m always surprised that two in three borrowers go it alone when buying a mortgage. Using a broker makes a lot of sense since the paperwork alone is head-melting.
For around €500 (or, in some cases nothing, as they receive commission), a broker will handle all the work and importantly, have a ‘relationship manager’ in each of the lending institutions. This gives him/her access and speed that you won’t be able to find yourself.
They can also shop around for the best rate. Contrary to popular opinion, the ‘headline’ rates you see online, or in the paper, aren’t all a bank has to offer. You can negotiate an offbook rate with them, depending on your circumstances.
For very attractive borrowers, especially those looking for one of the exceptions on LTI or LTV, then a broker will ‘tout’ your case to several and you’ll be the winner.
Tracker customers
Forget all of the above! If you hold a valuable tracker mortgage from Ulster Bank (or anywhere), do not even think about shopping around. This would normally be contrary to good consumer advice, but as trackers are no longer available, voluntarily giving yours up by switching bank would be a disaster.
The trackers are now Ulster Bank’s problem, not yours. Hanging on means they, or whoever ends up with your loan, has to honour the rate and terms, irrespective.
How they do this shouldn’t bother you. It’s possible they’ll appoint an agent to oversee and run these down, as Danske Bank did, when it appointed Pepper on its behalf here.