Stick with your fixed or switch to a new one?
Changing your mortgage could save a LOT of f inancial pain – but check f irst
Stick or twist? That’s the dilemma facing fixed-rate mortgage holders. Should they stick with the rate they already have? Or twist to a longer term fixed rate that will better see them through a crisis that looks set to last? Even now there’s a backlog of applications to switch. But don’t let that put you off trying – it will get a whole lot worse if you leave it until later.
Recently, Finance Ireland issued a fiveday deadline to complete applications (later upped to 10) as it significantly increased rates.
Brokers report that most applicants couldn’t meet the deadline and may face having their mortgage application reassessed. This could ultimately result in the loss of deposits and house sales falling through.
‘Moves by lenders to introduce rate increases are expected and understandable – but very narrow timeframes [are being] offered to consumers… to avail of the lower rates originally offered,’ says Trevor Grant, chairman of the Association of Irish Mortgage Advisors (AIMA).
He described this as a ‘perilous situation’ for mortgage seekers.
Since early summer, rates have been edging up on the back of the ECB rate increases though the really hefty hikes have yet to hit.
When they do, we could face mortgage panic – like what hit Britain this week.
The UK Government recently reversed tax cuts for the rich after sterling crashed.
This forced interest rates to spike so quickly that many mortgage holders were caught on the hop. Rates jumped nearly 1% in days – while some people were trying to put through their fixed rate.
Britain-based mortgage broker Sebastian Murphy told the Mail’s This Is Money website, ‘Customers are starting to panic and brokers are waking up at 6am to find half a dozen emails already in their inbox.
Some clients… can’t sleep.
‘A customer whose 1.45% fix is coming to an end… was offered a 3.11% deal – but that was 10 days ago. Today, the best he can get is a 4% five-year fix.’
Two-year fixed rate mortgages average 5.75% in the UK – compared to 2.38% two years ago, which is about where ours are now, though not for long. So get fixing. The European Central Bank whacked 0.75% onto interest rates a few weeks ago – a record margin – just a few weeks after hiking them 0.5% in July.
ECB rates now stand at 1.25% – but there’s plenty more to come.
‘We are some way off the peak in eurozone inflation and [therefore] ECB interest rates. I think at the very least we will get 0.5% rate hikes at the both the October and December ECB meetings, and then we will just have to wait and see what happens in 2023,’ says economist Alan McQuaid.
‘Personally I would look to fix for as long as possible if just for security and peace of mind.
‘Variable rates may fall at some point over the next 12-24 months especially if Euroland goes into a deep recession but I still think inflation is going to remain sticky for some time even after it has peaked, which will make it difficult for the ECB to cut.
‘I don’t think we’re going back to an era of zero/negative interest rates anytime soon.’
His sense of urgency is shared by other experts.
‘Don’t delay,’ says Rachel McGovern, director of financial services at Brokers Ireland. ‘Even a month’s delay could cost you.
‘In recent years we have seen, for the first time in Ireland, very longterm fixed interest rates at levels that may soon have people asking, “Why on earth didn’t I go for it?”’
But how long should we fix for – and what’s the best deal?
‘There are still some really low medium-term fixed rates on the market with seven-year fixed rates of 2.55% or down to 2.25% if you are eligible for a Green rate,’ advises broker Martina Hennessy of Doddl.ie
‘Our clients tend to opt for four years fixed and above with five- and seven-year proving most popular as they offer security over the medium term but also are still competitively priced from some lenders.’
Martina says 98% of clients are fixing. Not surprisingly, she advises borrowers to go through a broker. And I would tend to agree with her – as long as you pick the right one with a wide range of cheaper lenders to choose from. Brokers don’t charge you directly – they charge the lender.
But not everyone is advised to fix. ‘If a mortgage holder believes that they are likely to repay some or all of their mortgage in the next couple of years, it’s important to go with a lender that allows overpayments,’ says Joey Sheahan, head of credit at MyMortgages.ie.
On whether borrowers should fix for three-to-five years or longer, he advises: ‘If they are planning to
trade-up in the next three-to-five years, then a fixed-rate term of three-to-five years might be most appropriate. But if a person is regularly worried about money, they might prefer to fix for a longer period of time, say 10 years or more to give them peace of mind.’
Some lenders allow fixed-rate borrowers to switch into a new loan without penalty – or there might be only a small bill that’s worth paying.
But do check first.