My partner and I are sale agreed on our first home. We have been quoted a four-year fixed mortgage at 3.2 per cent by Bank of Ireland. This is the best rate currently available to us but I am aware that market expectations are that the ECB will reduce rates further.
Should we slow the process down in the hope that rates will soon fall, and so secure a lower rate? Will Bank of Ireland reprice fixed-rate mortgages quickly, or are they likely to delay updating? Securing a slightly lower rate could save us thousands over the fixed period, which would be of great benefit to us.
Separately, the vendors are trying to give themselves a long runway to secure their new home via clauses in the contract. We are living with our parents, so aren’t in a huge rush. We are keen to ensure the process continues in earnest, and are aware that the longer it takes to close the sale, the greater the chance of issues arising. How should we approach negotiations?
Mr D.C.
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With the European Central Bank (ECB) having cut interest rates again last week – for the eighth time since June of last year – your query is timely.
Interest rates are now a full two percentage points lower than at this time last year and a full 1.25 percentage points lower than last November when Bank of Ireland last cut its fixed mortgage rates.
However, in fairness, that cut was made in anticipation of future ECB cuts as well as purely market competition purposes as it was keen not to let rival AIB get too far ahead of it with a rate that would be more attractive to customers.
As it stands, Bank of Ireland headline four-year fix is available from a headline interest rate of as little as 3.1 per cent compared to the ECB lending rate of 2.15 per cent. On the more relevant APR basis, that comes out as 3.8 per cent.
It is pretty competitive and, with the ECB clearly flagging that it is minded to pause interest rate cuts for now, there might not be much incentive for any of the big banks to be cutting rates in a hurry.
Yes, there is talk of one further quarter point cut in ECB rates still being likely this year but that could be it for a while and there is no guarantee banks would respond to it anyway – outside of legacy trackers where they have no choice.
Even if they were to, could I give you any accurate assessment of the timing of any cut? Not really. Especially given the great uncertainties in the economy right now, my guess is that no one is going to be acting in haste but that is purely a guess.
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I’m conscious that when you start out with your first home – and your first mortgage – every penny tends to count, but I think you need to decide if you are happy with the rate and feel it is affordable for you. Assuming you are, budget for it and do not look back in regret. At least you will have the security of knowing that there can be no unpleasant upward shock in payments over the next four years.
There is certainly nothing in the economy that suggests any of the banks will be cutting rates substantially further.
On your second point, I think again that you need to be clear about what suits you and also, as you mention yourself, the risks involved.
Letting the vendors delay on closing may look like a win-win. You’re safely accommodated in your parents’ home without the financial pressure of mortgage repayments and the vendors haven’t locked in on the property they expect to move to.
However, there is no guarantee they will find somewhere or when. And your mortgage approval is only valid for so long. Go beyond that and you could find yourself going through the whole rigmarole again, in what could be a more uncertain economic environment where banks are even more risk-averse.
And while a well-worded contract should cover all loopholes, I have seen too many property buyers gazumped or, alternatively, stranded because the sellers have changed their minds to be entirely confident.
Personally, if you have found the home you want to buy and have your finances in place and an offer accepted, I’d be happier with my solicitor pushing for an earlier closing date than letting it drag. Yes, there is a risk the vendors could simply refuse and walk away, but that could happen anyway and at least you’d know where you stand.
Sisters and their mum’s home
Last week, a reader’s mother was planning to leave her home to herself and her sister, who already lives in the home, raising concerns for her about access to her inheritance without making the sister homeless.
In the piece, I focused on the tax-free threshold for either sister but, of course, the sister living in the property can avail of dwelling house relief, which means she at least will face no tax bill regardless of the value of the property or how much of it she inherits.
- Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
