The mortgage market has had a shake-up and there might be something in it for you.
Those borrowing for a home with a low building energy rating (Ber), public servants or anyone wanting discounted repayments in the first two years should know about new deals that are available from Avant and ICS. And if you haven’t been living like a monk for six months and need mortgage approval in hours, not weeks, then Núa Money and MoCo‘s artificial intelligence-driven process might be for you.
Whether you’re buying your first home or looking to switch mortgage, it’s worth checking out the new kids on the block.
Some of the best mortgage rates in recent years have been fixed rates, linked to high building energy-rated homes – until now that is.
Those with a low Ber are no longer stuck out in the cold. Avant’s new Flex mortgage doesn’t give a hoot about your insulation. It offers interest rates as low as 3.04 per cent for some borrowers – and you don’t have to fix either, well, not for long.
Flex is a bit like the old tracker mortgage in that it tracks a key euro zone lending rate – the 12-month Euro Interbank Offered Rate (Euribor) – the average interest rate at which European banks lend money to one another. So it’s not the European Central Bank rate, but it behaves a bit like it.
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“Every month, on the 10th of the month, Avant writes to brokers to confirm what the Euribor rate is on that date and that rate is held and available to the customer during that month,” mortgage broker Michael Dowling of Dowling Financial says.
Avant adds a set margin to this rate, which will depend on your loan-to-value (LTV) ratio. For those with a 10 per cent deposit, or a loan-to-value higher than 80 per cent, a 1.1 percentage point margin is added. For those with a 20 per cent deposit or a loan-to-value below 80 per cent, the margin is 0.9 of a percentage point.
The interest rate for Flex customers is set on the day you draw down your mortgage. It is fixed at that rate for the first 12 months of the mortgage, so Flex mortgage customers have certainty over their repayments the 12 months following at least.
“This is a tracker mortgage with a 12-month fixed element to it is how I would describe it,” Dowling says.
So what are the rates like? At the time of writing, those borrowing 80 per cent of the value of the home can access a rate of 3.04 per cent. Those borrowing between 80 and 90 per cent of the value will be offered 3.14 per cent.
A year into your mortgage, your rate is adjusted based on the 12-month Euribor market rate at that date.
Though a fixed rate, the product retains some of the advantages of a variable rate.
“If after three months you felt nervous about what’s happening with interest rates, you can switch out of it into a longer-term fixed rate with no penalty,” Dowling says. If after 12 months you want to change to a three or four-year fixed rate instead, you can do that too.
“The projections on this product are even better over the next number of months because the ECB is expected to reduce rates even further,” he says.
Flex suits a number of people, says Margaret Barrett of broker Mortgage Navigators. If you’re buying or switching mortgage on a home with a low Ber, the product will certainly pique interest as rates compare well with green rates from pillar banks.
Someone who has a variable element to their income, like a bonus, will value the facility to overpay the mortgage without penalty, Barrett says. This is typically more limited for fixed rate mortgages.
First-time buyers are typically borrowing 90 per cent loan-to-value, for which Bank of Ireland is offering a 3.1 per cent fixed rates long as you have an Ber A-rated property. While that interest rate is cheaper than Avant’s, you have a greater capacity to overpay the mortgage with Flex and you don’t have to spend on a retrofit to get the rate.
The Flex will appeal to those with a low mortgage borrowings too, Barrett says.
“Some lenders have a minimum amount of borrowing, so their cheaper rates are only available if you are borrowing €250,000 or more, but Avant doesn’t have that requirement. The Flex is available on mortgages over €100,000, and the Ber is irrelevant.”
AIB’s green rate for those whose mortgage is less than 50 per cent loan-to-value is 3 per cent, so the Flex is a competitive alternative, she says.
Those self-building or availing of the Government First Home Scheme need not apply, however. Avant’s Flex is not available to them.
Indeed, Avant, Nua Money, MoCo and ICS don’t lend for self-build or to those buying with the help of a scheme that puts a local authority charge on the property.
Interest-only
If you need money in the near term to renovate your home, to pay for childcare or to bridge an income gap while one earner takes time out, the new Flexi two-year interest-only option from ICS is worth considering, but with caveats.
This rate gives owner occupiers a break in the first two years, where you pay only the interest on the loan, but you must take out a five-year fix.
It is open to first-time buyers, movers and mortgage switchers and is available to those borrowing up to 90 per cent of the value of their home, with a minimum loan size of €100,000.
Interest-only for the first two years means reduced payments. Capital and interest repayments apply for the remaining term.
Rates are from 4.25 per cent up to 4.4 per cent, fixed for five years – so they are not the cheapest. If you borrow €250,000 over 30 years at a rate of 4.25 for example, you’d pay €1,229 a month on a normal capital and interest mortgage.
With ICS’s two-year interest-only feature, your mortgage repayment for the first two years will only be €885 a month. But your mortgage will move to a capital and interest mortgage at the start of year three with repayments increasing to €1,273 a month; that’s an overnight jump of €388 a month.
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Just like Avant’s back-to-the-future, non-tracker tracker product, this has a hint of the Celtic Tiger to it. Some borrowers ran into difficulty back then with features like this.
“Personally if a first-time buyer is looking for interest only for the first two years, I’d be concerned for when the repayments ratcheted up,” Dowling says.
Public-sector workers
The ICS Flexi product is not the most competitive rate in the market right now, but there is a sweetener for public-sector workers, Barrett says.
Whether you are a public-sector worker or you are buying a house with one, the Flexi will enable you to borrow several points further up the salary scale than with some other banks.
“For customers looking for maximum borrowings, the interest rate might not be the main decider,” Barrett says.
For joint mortgage applications where the public servant is not the main earner, ICS will assess their income five points up their pay scale.
Take the example of the primary earner who works in the private sector worker and their teacher partner who are applying for a mortgage. The primary earner is earning €65,000 and the secondary earner teacher is on point three of the salary scale, earning €43,469.
There is even more flexibility for two public-sector applicants
For the purposes of assessing how much they can borrow, the teacher’s income will be assessed five points up at point eight on the salary scale, bumping up their assessable income to €52,021.
This enables the couple to borrow more at €468,084 – almost €35,000 more than if they were assessed on the current teaching salary. Their mortgage repayments, interest-only for the first two years, will be €1,716 a month. After two years, this will move to capital and interest payments of €2,425 a month for the remaining three years of the five-year fixed period.
Under standard criteria, where the public-sector applicant would be assessed at three points up, the loan size would be €451,008, with capital and interest repayments of €2,258 a month.
There is even more flexibility for two public-sector applicants. The main earner will be assessed at three points up the salary scale, and the secondary earner at five points up.
MoCo and Nua will lend two points up the salary scale while Avant will lend one point higher. PTSB and Bank of Ireland don’t offer the feature. AIB will also go three points higher, but it’s not as generous as ICS’s new feature, Dowling says.
While the Flexi enables public servants to borrow more, their mortgage will be more expensive in the longer run due to the interest-only start.
Repayment ability
If you need mortgage approval in hours, not weeks, then new Irish lender Núa Money might be the one for you.
“They are the first real digital mortgage; their speed of accepting a client is unparalleled,” Barrett says. “You could submit something at 9.30am and have a full loan offer by 10.30am.”
How do they do it? They sidestep the cottage industry that proving repayment ability has become since the financial crash. This is where the mortgage applicant must live like a saint for six months, providing reams of bank statements as evidence. The broker would then comb through the applicant’s financial history looking for misdemeanours and proof of ability to repay.
Guess what? Núa Money doesn’t care about your bank statements.
“Not needing to demonstrate repayment capacity is a game changer for the Irish market,” Barrett says. “Núa has decided if you have the net disposable income on the assessment calculator, you have demonstrated you can pay.”
People whose dream home came up for sale, but whose bank statements for the previous six months weren’t pristine, value Núa’s pragmatism and speed, she says. Brokers are happy to be absolved of this grunt work too, she says.
This is challenging the legal system which is obsessed with getting hard copies of everything and producing original signatures
Núa says it is catering to the “thousands of customers with the financial capacity to afford a mortgage who are being locked out by outdated lending models”.
The lender also offers loans to immigrant visa holders who have been here for six months and have passed work probation. Bonus income is looked on more favourably too.
Rates start at a 3.6 per cent for a three-year fix for customers with a loan-to-value ratio of 60 per cent. Those customers will get 3.65 per cent if they fix for five years.
For those with loan-to-value of 70 per cent, the three and five-year rates are 3.9 and 3.95 per cent respectively.
These mortgage rates aren’t the cheapest on the market, but the product will appeal to buyers wanting to move fast and avoid the faff.
“I can get a mortgage approval letter in one hour and a loan document in two hours,” Dowling says. “With AIB, Bank of Ireland, PTSB and Avant, it takes 10 to 15 working days.”
Electronic rather than physical signatures speed up the legalities too.
“This is challenging the legal system which is obsessed with getting hard copies of everything and producing original signatures. They are light years ahead of the other banks,” Dowling says.
Austrian-owned MoCo is also using technology to speed things up. All applications are done online using Open Banking – a system that enables banks to share data. No need to order bank statements.
For those borrowing 90 per cent loan-to-value, MoCo offers a three or five-year fix of 3.95 per cent. For those borrowing 60 per cent, the rate for a three or five-year fix is 3.6 per cent.
