AIB "The SVR is higher in Northern Ireland than in the Republic"

[Brendan Burgess]

At yesterday’s Oireachtas Finance Committee meeting with AIB, AIB claimed that the SVR in the North is 4.75%, which is higher than in the Republic. None of the members of the Committee challenged this.

While this is technically true, it’s completely academic. This is a notional rate which is paid only by people who do not shop around.

Here are the current AIB rates in Northern Ireland

[broken link removed]

There is an arrangement fee of £295. But they will give switchers £250.

The Northern Ireland market is a highly competitive market, with banks actively chasing each other’s customers to switch for a better deal. After a few years, the combination of capital repayments and any increase in the value of the property puts the borrower into a lower LTV category and so they can switch to another lender and get a better deal. But their existing lender will want to keep the business and so will offer them a lower rate. Of course, if they have a bad credit history, they will be unable to switch and will probably be stuck with the higher Standard Variable Rate.

Even if they don’t reduce the LTV, they can switch lenders and get a better rate.



HSBC is a good example of a lender which offers good long term value and tries to retain its customers. All these rates are tracker rates for the full term of the mortgage

So, a customer who bought a house 5 years ago with a 90% LTV mortgage, who has reduced the LTV to 65%, can get a tracker rate of base rate + 1.29% for the remaining term of the loan.

If such a product were available in the Republic, the cost today would be 1.34% as the ECB rate is only 0.05%.

 

[ronaldo]

They were obviously relying on no one understanding the market in Northern Ireland - at least to the extent that they could be put on the hot-spot there and then.

I'm actually on the above 1.79% rate having originally moved to Northern Ireland in 2012. I was on an initial 2-year discounted variable rate of 2.9% with Ulster Bank. I moved to the 1.79% rate this year and am now considering moving to their 2-year fixed rate of 1.59% (or to their parent-bank, HSBC, on the 5-year fixed rate of 1.99% - which has a £1,499 fee).

I've also considered moving back south (I'm close to the border) but the SVR rates in the south alone would have a huge impact on my finances.

 

[Gerry Canning]

Ronaldo,

I think the polite word is disingenuous,
or maybe the Richard Nixon answer (plausible deniability) and hope no one asks the next question.

 

[ashambles]

While this is technically true, it’s completely academic. This is a notional rate which is paid only by people who do not shop around.

... a customer who bought a house 5 years ago with a 90% LTV mortgage, who has reduced the LTV to 65%, can get a tracker rate of base rate + 1.29% for the remaining term of the loan.

It's more likely a person who bought in NI 5 years ago at 4.49% for a 90% LTV may be trying to get the bank to reduce the rate to 3.99% for an 85% LTV. Normal capital repayments are low in the opening years of a mortgage, if you ignore variations in house prices, then it takes around 11 years of a 25 year mortgage to get your LTV from 90% to 65%.

It's probably a bit strong to describe the 4.7% SVR rate as being academic, many people will be paying it. According to this article 40% of all mortage owners are on the SVR in the UK. http://www.telegraph.co.uk/finance/...our-200000-mortgage-and-save-up-to-85000.html.

People in the ROI who meet the banks criteria can switch mortgages so if the AIB rate in NI is academic the BOI & AIB SVRs here are as well. The main problem here for potential switchers isn't whether the banks will facilitate a switch but whether the saving in switching is worthwhile.

 

[Brendan Burgess]

I moved to the 1.79% rate this year and am now considering moving to their 2-year fixed rate of 1.59%

Hi Ronaldo

It seems to me that you are in exactly the same position as a lot of people were back in 2007 and 2008. They had ridiculously cheap trackers but they fixed as they were worried about interest rates rising. They are now paying 4.5% instead of 0.8%.

Your tracker rate is so cheap that you should not give it up.

Brendan

 

[Brendan Burgess]

It's more likely a person who bought in NI 5 years ago at 4.49% for a 90% LTV may be trying to get the bank to reduce the rate to 3.99% for an 85% LTV.

Hi ashambles

Good point and good data, thanks. I had assumed that house price increases in Northern Ireland would have reduced the LTV significantly, but, in fact, they have fallen in the last 5 years.

"Academic" is probably too strong a word. But people can shop around. Even from AIB, they can get 3.49% for 90% LTV compared to 4.75% SVR.

And many people overpay their mortgage, which brings the LTV down as well. They would probably overpay by more, if they knew how big the savings were.

Brendan

 

[Brendan Burgess]

According to this article 40% of all mortage owners are on the SVR in the UK. http://www.telegraph.co.uk/finance/...our-200000-mortgage-and-save-up-to-85000.html.

Hi Ash

That is a really great article. Shows the cost of inertia.

Brendan