Has any AIB SVR customer switched to the lower LTV rate?

[Brendan Burgess]

It's their policy. I doubt if the Ombudsman would uphold it - AIB and EBS are supposed to be separate banks.


Brendan

 

[ClubMan]

Sorry - you doubt that the FSO would uphold the policy or would uphold a customer complaint against it preventing them switching to a more affordable rate?

 

[Sarenco]

I need to check exactly what the remaining term was reduced to the last time I paid a lump sum but let's assume there's exactly 15 years left to run and 200k of principal. It seems to me that monthly repayments at 3.8% are of the order of €1,453, whilst monthly repayments at 3.55% are €1,429 (there or thereabouts). The net saving over the 15 years is c€4,300.

That is not to be sniffed at. However, thesaving over the course of the first 2 years is less than €600. The net cost of switching might be 1700, less €1000 received from KBC. So someone in this scenario would need at least 2-3 years with KBC at a saving of 0.25% to break even. (Correct me if I'm wrong)

In this scenario, the differential may not be enough for a borrower to take the chance that KBC will offer a 0.25% discount to their existing lender for at least 3 years.

Hi Villaines

Yes, by my calculations a 0.25% reduction in the interest rate charged on a €200k amortising mortgage with a 15 year term remaining would result in a saving of €4,295.

However, I wouldn't expect the net cost of switching to be as high as suggested. Assuming the property will remain in your own name and you use the same solicitor that acted for you on the original acquisition, I would be very surprised if the legal costs and valuation costs related to the refinancing exceeded €1,500 (including VAT and outlay). Netting off the €1,000 contribution from KBC and the fact that they will pay your house insurance premium for a year, the net cost of switching is likely to be trivial.

In calculating any payback period (i.e. the length of time it will take you to recoup the costs of a refinancing), you have to bear in mind that your interest savings are higher earlier on (as you are paying interest on a higher outstanding principal amount). By my calculations, you would save €531 in interest payments in in the first 12 months, €472 in the second twelve months, €451 in the third twelve months, etc. In other words, even if your net cost of switching was as high as €700 (which I think is very unlikely) you would recoup this cost in around 15 months.

 

[Sarenco]

You don't seem to appreciate the hassle and cost of moving and the fact that the future is not certain.

I would prefer to be with a lender which treats all customers fairly. In theory, I can change lender as often as I like, but the deals on offer to cover the switching costs may not be there. My circumstances may change and I may no longer be able to switch. Consider the huge numbers of people who are locked into KBC and ptsb. And people get busy and distracted and don't monitor their mortgage rates continuously.

Of course, if KBC were 1% lower, I probably would recommend switching to them. But if a lender were a bit more expensive but has a record of treating customers fairly, I would probably go to them instead.

Well, having gone through the mortgage application process more than once, I think I have a pretty good idea of the hassle involved. While you certainly have to get your paperwork in order, I've never found the process to be that much hassle to be honest.

In terms of costs, I've made some enquiries and the "going rate" for the legal fees for a re-mortgage seems to be around €1,000. Adding valuation costs, outlay and VAT you are looking at an overall cost of around €1,500 to complete a refinancing. Currently the lenders that are active in the switcher market offer incentives that will cover most, if not all, of these costs.

I certainly agree that the future is uncertain, which is why I am strongly of the view that borrowers should refinance their mortgages if the numbers make sense today. Trying to guess what rates individual lenders might charge in the future seems like a futile exercise to me. Similarly, I don't think it is really possible to anticipate in advance what way individual lenders will treat borrowers in the future. Look at the different approaches adopted by AIB and BofI in relation to mortgage arrears - could that have been anticipated by a borrower in 2007? NIB had an excellent reputation in terms of customer service back in 2007 - not so much today.

I'm not sure why you would consider a 1% rate difference to be your trigger for switching. A 0.5% rate difference on a €300k amortising mortgage over 25 years would represent a saving of €24,144.50. Even if you had to switch, say, four times over the term to maintain the 0.5% rate differential and this cost you a total of, say, €7,000, you are still looking at very material overall saving.

I appreciate that people get distracted and don't review mortgage rates (or the costs of any other financial product for that matter) on a regular basis. Customer inertia is certainly a banker's best friend but my point is really that for a small amount of effort, many borrowers could be making very significant savings over the medium to long term. This would encourage much needed competition within our mortgage market which itself would create a virtuous circle with decreasing rates overall.

 

[elcato]

In terms of costs, I've made some enquiries and the "going rate" for the legal fees for a re-mortgage seems to be around €1,000. Adding valuation costs, outlay and VAT you are looking at an overall cost of around €1,500 to complete a refinancing. Currently the lenders that are active in the switcher market offer incentives that will cover most, if not all, of these costs.

But is there not a restriction of when you can move again for the incentives. If the banks suddenly up their rates in a year to 1% more you would be stuck for a few years right ?
Btw - I am in favour of moving just trying to point out that there are difficulties and cons to it.

 

[Sarenco]

But is there not a restriction of when you can move again for the incentives. If the banks suddenly up their rates in a year to 1% more you would be stuck for a few years right ?
Btw - I am in favour of moving just trying to point out that there are difficulties and cons to it.

To be fair KBC do say that they "reserve the right" to claw back their switcher incentives if you redeem the loan within three years. I don't believe any of the other lenders have similar provisions and I'm not sure I really understand how KBC could exercise their claw back right - it's not like you owe them the money.

In any event, no lender can prevent you from repaying your loan and refinancing elsewhere (although there may be costs involved with breaking out of a fixed rate mortgage).

Yes, of course any lender could suddenly hike the rate on any variable rate mortgage. If you are uncomfortable with that fact, then you should probably consider fixing your rate.