Which lender in a time of rapidly changing mortgage rates?
- Thread starter Brendan Burgess
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Mark Coan
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Here's a bit more about the ranking system, I do think it helps think about things in a more rounded way, although not perfect and each customer is different. We have been using as a framework for new advisors to get away from just thinking about introductory rate.
Rate (30%): We base this on APRC (I'm not a fan of using intro rate as has been discussed elsewhere.) Getting the best interest rate over the whole term of the mortgage is critically important, some providers push cash back or a low introductory rate to trick customers into signing up to higher long term rates that will cost thousands more in interest and you may not be able to switch/fix again later in the term (see next point).
Security (30%): The longer you fix for the longer you cap your repayments for. This means removing the risk you will lose your home if interest rates spiral out of control. You should fix for as long a period as you can if you want to make sure you can afford your payments longer term.
Even if these cost a little more in the short term we recommend these products for most customers for the certainty it provides.
My take is we are likely to be in an era of high interest rates for the foreseeable, whether I'm right or not it is prudent for homeowners to assume this is the case to avoid putting their home at risk. There is real value to fixing long term for most, hence the high weighting.
Approval (20%): Different lenders have different credit rules, we take a view on each lenders policy and process, also having access to a broker is crucial in ensuring that you are likely to get your mortgage approved.
Speed (20%): Lender approval times vary wildly from 1 month to 6 months. With interest rates rising having a lender that is likely to approve you quickly can be critical to securing the best rate. We weighting this more highly as a factor as a result.
Hope that clarifies the approach a little.
Maybe slightly off topic but I would advise people to avoid PTBS based on my experience. They consistently charge existing Customers a higher interest rate than new Customers - in my case 5.8% for many years compared to 4.8% for new Customers. I've a BTL mortgage with PTBS that has c. 4 years still to run. Remaining mtge is c. €40K on property worth many multiples of that. They have now included my mortgage in a suite of mortgages they are selling to Pepper Finance and once transfer is complete, I expect interest rate to increase to 6.5%. This transfer is despite their confirmation that my mtge has always been fully performing and never having been in arrears, restructured, etc. I met with them (finally) and lodged a formal complaint with PTSB. The slow response to my complaint was in their words due to the unprecedented high volume of complaints... I wonder why?. Their response to my complaint was to say that the loan sale consisted of mainly performing buy to lets loans and as mine is part of a group of mtges sold in this way then it cannot be unbundled. So I would advise anyone considering either a BTL mtge or regular PPR mtge to avoid them. That's just my experience and opinion. I am now taking steps to overpay my mtge so as to reduce the balance further prior to transfer.
But those weightings seem totally subjective.
As Brendan has said, surely for most borrowers the ("normal" - not discounted introductory) rate is by far the most important datum?
Brendan Burgess
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Hi Mark
You need to change the word "security" which is misleading. Something like "term length" would be more appropriate.
But better still, combine rate and security and you are up to 60% with the rate weight, which is still way too low, but which is closer to the 90% which most of the rest of us seem to think is appropriate.
But do brokers actually have access to all the lenders?
For example, are you an intermediary for AIB & EBS, or just Haven?
Whether a person uses a broker or not, it is very important that they or the broker apply to several lenders at the same time, get approval in principle from as many of them as possible, and do as many of the subsequent steps as possible before you have to tell your solicitor which lender to try to get full approval (a letter of offer) from.
But as @RedOnion asks:
If no brokers are allowed to deal with AIB (is this the case?), a borrower would need to use a broker for Avant, Haven and PTSB, but apply to AIB themselves.
I believe that by attempting to get approval in principle from several lenders, you don't need to concern yourself with "Approval" and "Speed" in the above rating system: you will get a strong sense of how picky and fast/slow a lender is just by attempting to get AIP from them (and going a few steps further in the process). And by doing that, you will be protected if one of the lenders increases their rates in the middle of the process.
With Approval and Speed taken out of the mix, it mostly comes down to the classic "Fix for shorter at a lower rate versus fix for longer at a higher rate?" question. Of course, it is crucial not to use introductory rates for this purpose. (But I wouldn't necessary consider green rates or ">€250k" rates to be introductory rates – unless we're talking about Bank of Ireland, where they most definitely are introductory rates.)
But what about somebody who is taking out a mortgage now but who thinks they will (or might) move in the next few years? A long fixed period could leave them with a very high break fee when they move home. Borrowers need to be made aware of this downside to fixing for a long period, and so "Security" (the word needs to be changed, at the very least) may be misleading in a rating system.
(Avant will refund or waive the break fee if you trade up and take out your next mortgage with them.)
Mark Coan
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Thanks Brendan, Yes something like that makes sense, maybe "Rate Fix" or "Rate Stability" would work. Will review this one.
Thanks RedOnion worth clarifying this point, no broker can package for AIB or EBS. For EBS that's not much of a loss, as they aren't generally very competitive. Haven are generally similar to AIB, being part of the AIB group, bar at lower LTV's. So AIB are the one non broker lender worth a look if you are on the lower LTV end.
Again though a good broker should still tell you that, even if they don't package for them.
I'd beg to differ. Since November, Havens pricing is closer to EBS than AIB. EBS rates are generally 10bps higher, but customer receives cashback. So EBS is better than Haven in my books.
Haven customers have absolutely no guarantee that their rates will follow either AIB or EBS, and they have different terms and conditions from AIB customers. AIB have intentionally kept 3 separate brands.
For anyone <80% LTV, AIBs direct rates come out ahead of Haven. For higher LTVs, Haven beats Avant.
I think your ranking above showing Avant as 4 of the top 5 rates currently available is an incomplete picture for the majority of borrowers.
Mark Coan
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Hi RedOnion, understand your point entirely this is the difference between intro rate and long term raising its head again. If you consider only introductory rates you are on the money, but I'm very much against getting into bed with lenders with high follow on rates like EBS due to the risk factors when you come off those rates.
If you look at the APRC comparison for the 3 year rate for example, which includes the follow on rates, you can see what difference it makes:
| 3 Year Fixed Mortgage Rates | up to 50% LTV | up to 60% LTV | up to 70% LTV | up to 80% LTV | up to 90% LTV |
| Avant Money Mortgage | 3.25% | 3.25% | 3.30% | 3.35% | 3.40% |
| ICS Mortgages | 4.75% | 4.75% | 4.95% | 4.95% | 5.05% |
| Finance Ireland Mortgage | 5.45% | 5.45% | 5.50% | 5.50% | 5.85% |
| Haven Mortgages | 3.35% | 3.35% | 3.35% | 3.35% | 3.35% |
| AIB Mortgage | 2.85% | 2.95% | 2.95% | 2.95% | 3.05% |
| EBS Mortgage | 3.75% | 3.75% | 3.75% | 3.75% | 3.75% |
| Permanent TSB Mortgage | 3.15% | 3.15% | 3.25% | 3.25% | 3.85% |
| Bank of Ireland Mortgage | 3.25% | 3.25% | 3.25% | 3.25% | 3.25% |
Factoring this in makes EBS one of the worst lenders in the market for value.
You are bang on about the Haven and AIB differences on LTV though. As I understand it Haven have a legacy systems constraint so they can't differentiate on LTV, so they have to average their rate across all LTV's unlike their parent AIB.
Ironically this is what makes Haven the stand out option for value on higher LTV's.
There's something wrong with your AIB rates there. Looks like you used old rates?
Why are you cherry picking 3 years? Why not pick a term AIB are actually competing with?
Not if you look at their 4 Year or 5 year rates. Guess what? They match, or beat, Avant for higher LTVs.
In my personal opinion, APRC is completely meaningless in the current environment. We have no idea what actual rates will be available to customers at the end of their fixed rate period.
AIB, Haven and EBS have had identical rate increases (0.5%) in both October and November, so the differences between their rates haven't changed at all for a few years.
EBS's rates are 20 to 40bps higher than AIB's (if we use the 3- or 5-year fixed rates).
For what it's worth, Haven's 7- and 10-year fixed rates are significantly better than AIB's (at all LTVs, but especially at higher LTVs). And they will give you €5,000 cashback (on all of their fixed rates except their green rate) if you borrow €250k or more.
But the major downside to Haven is that it is taking people absolutely ages to switch their mortgage to them. It's not clear if these delays are affecting first-time buyers and movers too.
EBS don't have "intro rates" – they offer the same rates to both new and existing customers. They do however give large amounts of cashback to new customers, which partly explains why their rates are high.
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Thanks Paul, I just had the latest rates to hand and couldn't remember the history.
Brendan Burgess
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So where are we?
Brokers
I did not mention brokers in my original post. I would advise most people to apply directly to their own bank and to AIB.
A competent, efficient, honest broker might well be a help, but many are dishonest or incompetent. For example, they don't recommend AIB because they don't get commission from AIB. And AIB is often the best option.
But you should also apply to Avant and you must go through a broker to get an Avant mortgage.
Brokers differ in their opinion. Mark believes in aprc - most of us don't.
Weighting
The weighting sounds like a good idea in theory, but in practice, I don't think it works.
If I want to buy a one-off rural house, it doesn't matter how good Avant are on rates, they won't lend to me.
On the other hand, if I have had a blip on my credit record, it doesn't matter how high BoI rates are, if they are the only lender who will lend to me.
But maybe that table without the total score would be a good idea e.g.
Brokers
I did not mention brokers in my original post. I would advise most people to apply directly to their own bank and to AIB.
A competent, efficient, honest broker might well be a help, but many are dishonest or incompetent. For example, they don't recommend AIB because they don't get commission from AIB. And AIB is often the best option.
But you should also apply to Avant and you must go through a broker to get an Avant mortgage.
Brokers differ in their opinion. Mark believes in aprc - most of us don't.
Weighting
The weighting sounds like a good idea in theory, but in practice, I don't think it works.
If I want to buy a one-off rural house, it doesn't matter how good Avant are on rates, they won't lend to me.
On the other hand, if I have had a blip on my credit record, it doesn't matter how high BoI rates are, if they are the only lender who will lend to me.
But maybe that table without the total score would be a good idea e.g.
Mark Coan
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Thanks for spotting this, you're right the rest of the rates where ok, but the AIB ones were old ones table updated apologies, AIB are now a bit worse as a result (I was making the broker option with Haven look worse than it should have
), but ranking positions are unaffected.| 3 Year Fixed Mortgage Rate APRC | up to 50% LTV | up to 60% LTV | up to 70% LTV | up to 80% LTV | up to 90% LTV |
| Avant Money Mortgage | 3.11% | 3.11% | 3.12% | 3.39% | 3.41% |
| ICS Mortgages | 4.90% | 4.90% | 4.92% | 5.15% | 5.18% |
| Finance Ireland Mortgage | 5.11% | 5.26% | 5.27% | 5.27% | 5.54% |
| Haven Mortgages | 3.30% | 3.30% | 3.30% | 3.30% | 3.30% |
| AIB Mortgage | 3.00% | 3.00% | 3.00% | 3.17% | 3.35% |
| EBS Mortgage | 3.80% | 3.80% | 3.80% | 3.80% | 3.80% |
| Permanent TSB Mortgage | 3.63% | 3.63% | 3.77% | 3.77% | 4.00% |
| Bank of Ireland Mortgage | 3.80% | 3.80% | 4.00% | 4.00% | 4.20% |
No reason, here is the same table for the 4 year rates which still show similar outcomes. EBS still look very poor value, due to their super high variable rates which I'm not a fan of at all.
| 4 Year Fixed APRC Comparison | up to 50% LTV | up to 60% LTV | up to 70% LTV | up to 80% LTV | up to 90% LTV |
| Avant Money | 3.19% | 3.19% | 3.21% | 3.45% | 3.48% |
| Haven Mortgages* | 3.2% | 3.2% | 3.2% | 3.2% | 3.2% |
| AIB | 3.17% | 3.34% | 3.34% | 3.34% | 3.50% |
| Permanent TSB | 3.49% | 3.49% | 3.49% | 3.49% | 3.75% |
| EBS | 3.6% | 3.6% | 3.6% | 3.6% | 3.6% |
| Bank of Ireland** | 3.1% | 3.3% | 3.5% | 3.5% | 3.8% |
It's a blunt instrument all right, but the best one we have to sum up the long term cost of credit for the customer. The weakness in it is obviously that the variable follow on rates are just that, variable. So in theory a lender can change them willy nilly, however in practice variable rates pricing strategy stays pretty stable over time. So we can actually forecast pretty confidently that a lender with high variables will stay high relative to the rest of the market and a lender with low will stay low.
The default case for working out what is the best choice for the average consumer has to be based on average consumer behaviour in my view. Most consumers don't switch or re fix at the end of their fixed term, they roll off onto the variable. They shouldn't but they do, so that's what we consider when giving advice. For serial switchers the picture is different, but they are the exception that proves the rule.
I actually think looking at APRC is more important than ever right now, but I know opinions differ on this.
Agree Brendan, I think this would be something that might be useful to have on the forum as a starting point for people in addition to the best buys. No matter how scientific we try to be it will be subjective and individual cases will vary, the AskAboutMoney version will obviously therefore differ from the way we see it @moneysherpa, but I think it would be helpful.
There is no scientific/objective basis to the original weightings as far as I can see and as I have mentioned already. As such, they seem pretty useless to me.
Real data doesn't back that up. For lenders who offer proper fixed rates to their existing customers, the customers refix.
So we'll ignore the fact that existing customers can refix at new business rates?
So your top 4 goes to a lender with absolutely no track record, where we can't actually forecast anything?
Here is my attempt to summarise my thoughts. (I'm repeating some of the points I have made already.)
When comparing the interest rates of different lenders:
Using numbers gives a false sense of certainty and precision. And as I said above, Credit Policy and Speed for a given lender can largely be determined just by applying to them.
This is a very important point. If we had a normal mortgage market, I would maybe agree with using APRC as a proxy for which lenders offer the best long-term value. But we don't. Specifically:
- You really should apply to more than one lender at the same time
- If your broker isn't doing this, they are providing a poor service, especially in a time of rising interest rates
- Applying to multiple lenders protects you somewhat against rate increases that happen in the middle of the process
- The interest rate is almost always the most important consideration – by far
- Because Avant only work through brokers, and because AIB don't deal with brokers, you must find a broker who will make multiple applications for you (to Avant, Haven and PTSB in most cases) and you yourself must apply directly to AIB
- You and the broker should get approval in principle from as many of the lenders as possible, and you should go a few steps further in the process. There will come a point where you will have to tell your solicitor which lender to try to get a letter of offer from
- Will you be liable for fees with the broker if you tell them far into the process that you've decided to go with AIB?
When comparing the interest rates of different lenders:
- Never look at introductory rates because they flatter that lender
- But Bank of Ireland are now pretty much the only lender that discriminates on rates between new and existing customers (ignoring one single rate from PTSB)
- But do look at "green" rates if you are eligible for them (as long as it's not a Bank of Ireland green rate)
- They are available to both new and existing customers
- Maybe look at ">€250k" rates (as long as it's not a Bank of Ireland rate)
- You are eligible for these rates if your mortgage balance is €250k or higher
- Remember, even if your mortgage is more than €250k at the moment, it won't be forever – and so there will come a point in the future when that discount won't be available to you when you go to re-fix
Using numbers gives a false sense of certainty and precision. And as I said above, Credit Policy and Speed for a given lender can largely be determined just by applying to them.
This is a very important point. If we had a normal mortgage market, I would maybe agree with using APRC as a proxy for which lenders offer the best long-term value. But we don't. Specifically:
- None of the mainstream lenders increased their variable rates recently when they increased their fixed rates
- Almost no new mortgages are taken out at variable rates – the vast majority are fixed rates – and so lenders aren't competing on variable rates
- Right now, nobody is on an Avant variable rate. The first Avant customers will only roll off their fixed rates late next year. Only then will we get some sense of what Avant's variable rates really are. Their advertised variable rates (2.95% or 3.3%, depending on LTV) seem unrealistically low.
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