Key Post Cheap tracker - trade up now or wait?

[Brendan Burgess]

This issue will be facing a few people and I would like to develop a systematic approach to answering the question.

Reasons for waiting

• The longer you keep the tracker, the lower the interest on your mortgage. Because the interest is so low, you are paying huge chunks off the principal and thus reducing the negative equity.
• If you are with Bank of Ireland or Ulster Bank, they might improve their mover offer
• If you are with KBC, you should wait as they don't have a tracker mover offer at present but might introduce one
• If you expect house prices to remain at the current level or if you expect them to fall, you are better off waiting.

Risks in waiting

• If you expect house prices to rise, your savings through staying on the cheap tracker may be wiped out by a higher price for the house
• You require savings equal to 10% of the new house price. If you have just enough for your new house now, a spike in house prices might put it beyond your reach
• If you are with AIB or ptsb, they might make their tracker mover less generous
• If your personal circumstances change, you may no longer qualify for the new mortgage e.g. if you change job, they might not give you a new mortgage until you are permanent for two years
• When interest rates rise, you may not qualify for as big a loan

Other reasons for moving now

• You get a better house sooner

Case study ptsb customer (AIB would be similar)

Existing House value|€200k |
Existing Mortgage|€300k|
Savings |€50k

Existing interest rate |1%|ECB + 0.75%
Annual interest| €3,000
|
New house value| €300k
New mortgage| €350k

New rate| |2% on €300k;5% on €50k

New interest| €8,500
Additional interest|€5,500

House price increases in excess of 5.5 % would wipe out the savings made by staying another year.

Case study Ulster Bank customer ( Bank of Ireland will be similar)

Existing House value|€200k |
Existing Mortgage|€300k|
Savings |€50k

Existing interest rate |1%|ECB + 0.75%
Annual interest| €3,000
|
New house value| €300k
New mortgage| €350k

New rate - first 5 years | |2% on €300k;4.5% on €50k
New rate - after first 5 years||4.5% on €350k

Additional interest after 5 years | €16,000

Additional interest| €13,000

House prices would have to rise at least 10% a year consistently to make moving now worthwhile

 

[Brendan Burgess]

If you just about qualify for a tracker mover now, a sudden spike in house prices could mean you would no longer qualify

For example, ptsb requires you to have a deposit of 10% of the price of the new house. If you want to buy a house for €300k and you have €30k, a house price rise of 10% would mean you would need €33k. This should be doable, but a rise of 20% might cause you problems.


However, a rise in house prices will help you to meet the LTV criteria

For example, the maximum LTV ptsb will allow is 125%. ( AIB and BoI allow 175%)

|trade up now| if prices +10%
Existing mortgage|€200k|€200k
House value|€100k |€110k
Current LTV|200%|180%
|
Buy a house for |€200k |€220k
Deposit|€60k|€60k
New mortgage|€240k|€260k
New LTV |120%| 118%

A fall in prices might bring you below the LTV.

 

[Eschat]

w.r.t the UB offer, I think it's worth noting that nobody in their right mind will stick with a 4.5% rate after the 5 year fix unless their high LTV gives them no alternative.

In my case I'd be trading up to a house where I'd have ~40% LTV immediately, using savings I've accumulated over the last ten years of being on a cheap tracker, and the LTV would be even lower in 5 years time. That LTV will currently get me a rate of 3.85% with KBC, compared to the 3.6% 5 year fix with UB.

So it's almost worth switching to another lender immediately to save doing it in 5 years time.

Maybe that's what UB want - losing tracker customers would presumably do wonders for their net margins, arrears cases notwithstanding.