Key Post In the light of the recent rate cuts, should I fix my mortgage rate?

Update 8th January 2015.
This was initially written in response to the AIB rate cuts. All the banks have cut their variable rates for new business now and probably will cut them further. I still think that, on balance, it is best not to fix.


This is a very big decision for people. Check out this Key Post: Fixed or variable? from 2012 which sets out the arguments in a systematic manner.

However, I am strongly of the opinion, now, in October 2014, that people should not fix their mortgage rate if they have a Standard Variable Rate mortgage.

The Irish lenders have been getting away with charging artificially high standard variable rates. The average rate is around 4.4% compared to an average in the Eurozone of 2.6%. I have been campaigning to highlight this and to bring the SVR down towards Eurozone levels.

With the stress tests out of the way, the lenders will probably be more open to competing properly in the market. AIB cut the rates yesterday. I have no doubt that others will follow suit.

Up to now, for some very odd reason, none of the politicians or government ministers have shown any interest in this subject. I expect that to change now and there could be a spiral of cuts.

If you have a mortgage with a Loan to Value of less than 70% and you have a good income, I expect that you will be able to switch your mortgage to another lender to get a much better deal. If you have fixed you will not be able to take advantage of this. So don't fix.

High LTV mortgages are very risky for the lenders as we don't have any effective sanctions for people who don't bother paying their mortgages. So I expect that 90% LTV mortgages and, maybe even 80% LTV mortgages, will continue to have a high rate. I still would not fix, but the case against fixing is not as strong as it is for low LTV mortgages.

If you do fix, check what happens at the end of the fixed term...
In many cases, people are move to the Standard Variable Rate which is much higher than the Loan To Value rate.

I think you're reasoning is very sound there. With always the proviso, that just in case higher rates would cause you a problem, sometimes than fixing can be a solution. People must make their own decisions. And everybodys case is individual to them.

Of course, if lenders introduce much, much lower fixed rates, then it would worth considering fixing.

For example, a fixed rate of around 3% would be well worth considering. I would hope that SVRs for low LTVs would drop to around 2.6%, but if I was offered 3%, I would take it.

Cheapest fixed rates currently on offer

AIB
New rates from 4 November
2 year and 3 years: 3.8%

[broken link removed]
1 year : 3.5% (3.3% if you have a current account with KBC)
3 year fixed < 60% 4.2% (4% if you have a current account with KBC)

[broken link removed][broken link removed] 3 year fixed rate, < 80% LTV : 3.99%

Note: I find the Ulster Bank layout very difficult to follow. This seems to be the rate for switchers. I am not sure if existing customers can qualify for this rate.

Bank of Ireland
1 year fixed <75%: 4%
5 year fixed <75%: 4.75%
10 year fixed - all LTVs: 4.99%

PTSB
2 years <70%: 4.4%

I recently re-fixed for 2 years with rate of 4.00% (previously was 3.6%) as variable rate offered was 4.6%. Not sure if that was right option given the recent SVR reductions from AIB.

Brendan, the final line of your first post could possibly be interpreted as saying that, while you argue that people probably shouldn't switch to fixed rates, you possibly wouldn't argue that as strongly for people on >80% LTV mortgages?

That is exactly what I am saying. I have revised the final two paragraphs as follows:

If you have a mortgage with a Loan to Value of less than 70% and you have a good income, I expect that you will be able to switch your mortgage to another lender to get a much better deal. If you have fixed you will not be able to take advantage of this. So don't fix.

High LTV mortgages are very risky for the lenders as we don't have any effective sanctions for people who don't bother paying their mortgages. So I expect that 90% LTV mortgages and, maybe even 80% LTV mortgages, will continue to have a high rate. I still would not fix, but the case against fixing is not as strong as it is for low LTV mortgages.

Click to expand...

How do banks calculate LTV when switching? is it on the price you paid or the current estimated market value?

If you have a mortgage with Bank of Ireland and you apply to switch to AIB, then AIB will use the current figures.

Brendan

Hi Brendan, will shortly be drawing down mortgage with AIB, small mortgage ( <100k) over 10 yrs, LTV in 50-80% bracket, so options are to go variable @4.05% or fix for 3 or 5 yrs @ 3.8% or 3.9% respectively . I hear what you're saying about not fixing even at the now lower AIB rates but very tempted to go for the 3 year fixed @3.8% all the same !
Any comment / advice ? Thanks !

What's the hurry in fixing?

If the variable rate is 4.15% and they are fixing at 3.8%, it suggests that even AIB is expecting the variable rates to drop.

The fact that it's a small mortgage over 10 years would suggest to me that you might be in a position to pay it off even quicker. Therefore you should probably stay flexible and go for a variable rate. If you fix, and later find yourself in a position to make a capital repayment, you will pay a penalty.

Brendan

Bobbyg said:

How do banks calculate LTV when switching? is it on the price you paid or the current estimated market value?

Click to expand...

You have to get a valuation done by a bank approved valuer.

Hi Brendan,
1) my new SVR with the EBS is moving to 4.33% so it seems to make sense to move to a 1 year fixed at 4.15% and see where the rates are in a years time, rather than go with a longer term rate?
2) has there been any hint that the SVR at the AIB'S brand will not be influenced by the ECB in the future when rates begin to go up again?
Thanks

I have my mortgage with AIB after purchasing in mid 2013. I suspect my LTV has now fallen into the 50-80% range. If I get the property revalued and submit that to AIB will they switch me to the 50-80% rate i.e. 4.05% instead of 4.25%?

Brendan,
I am currently on a SVR mortgage with AIB. I have fixed twice in the past, saving both times when compared to the SVR over the duration of my fixed rate. Until this announcement, there was no fixed rate currently more favourable so I have remained with the SVR. Now I have a decision to make!
While it might be likely that there will be another decrease to the SVR, what would the timeframe on this be and how much of a decrease?
If for example, it was reduced by another quarter percent in 6months to a year, it would still not be as cheap as the 2 year fixed rate of 3.8%. If I went with the 2 year fixed rate, I would certainly save in the immediate term and the SVR would have to decrease by more than 0.35% to balance out the immediate saving I would make by fixing.
Unless you think the SVR will further decrease by 0.4 or 0.5 in the next few months, fixing for 2 years seems like the obvious thing to do. There are too many unknowns to fix longer than this but I just can't see how I would not save money by fixing for 2 years at 3.8%. It also means I have cash in my pocket now which is a considerable factor. Maybe I'm missing something?

ANCHOR MAN said:

Hi Brendan,
1) my new SVR with the EBS is moving to 4.33% so it seems to make sense to move to a 1 year fixed at 4.15% and see where the rates are in a years time, rather than go with a longer term rate?

Click to expand...

There is no right answer to this question. If the rate stays at 4.33% for the year, you will be saving 0.18%. I believe that they are still overcharging by 1.5%. I don't know if the campaign will be strong enough to eliminate all or any of this overcharge, but I think you have more to gain by staying variable.

2) has there been any hint that the SVR at the AIB'S brand will not be influenced by the ECB in the future when rates begin to go up again?
Thanks

Click to expand...

None whatsoever.

PolkaDot said:

I have my mortgage with AIB after purchasing in mid 2013. I suspect my LTV has now fallen into the 50-80% range. If I get the property revalued and submit that to AIB will they switch me to the 50-80% rate i.e. 4.05% instead of 4.25%?

Click to expand...

I said that they would not switch you in another thread, but another poster corrected me, saying that they had submitted a revised valuation and had their LTV category changed.

CillDaraLily said:

Unless you think the SVR will further decrease by 0.4 or 0.5 in the next few months, fixing for 2 years seems like the obvious thing to do. There are too many unknowns to fix longer than this but I just can't see how I would not save money by fixing for 2 years at 3.8%. It also means I have cash in my pocket now which is a considerable factor. Maybe I'm missing something?

Click to expand...

It's very odd that AIB has a fixed rate lower than their SVR. This suggests that they expect rates to fall further.

I would wait and see what happens. I expect that the other lenders will match and some will exceed the cut. So you might be able to switch to another lender altogether.

Does anyone know if the reduction in rates applies to their commercial variable rates also?

Macbookair said:

Does anyone know if the reduction in rates applies to their commercial variable rates also?

Click to expand...

It doesn't. They have reduced the owner occupied mortgage rates only.