To fix or not fix that is the question.

brian2614

Just about to take the plunge and buy my first house.

Any advice on what to do as regard fixing or staying variable.

These are the rates I have been offered

Variable rate 3.75%
1 year fixed 3.50%
3 year fixed 3.65%
5 year fixed 3.80%

Any advice would be great people

Seth Brundle

It would depend on how much you have borrowed and how able you are to cope with an interest rate rise.
The benefit of a fixed rate is that for the period, you know exactly how much you need to pay back each month. With variable, an increase (however unlikely) could involve several hundred quid a month.

brian2614

kbannon wrote: »

It would depend on how much you have borrowed and how able you are to cope with an interest rate rise.
The benefit of a fixed rate is that for the period, you know exactly how much you need to pay back each month. With variable, an increase (however unlikely) could involve several hundred quid a month.

I am borrowing €135K over 25 years with earnings of €45k per year.No bills at the moment.

Seth Brundle

I'm guessing that your repayments would be about €850. If this were to increase to say €950, how easily would you manage?

You will have bills (life cover, home insurance, LPT, etc.)!

Michael D Not Higgins

kbannon wrote: »

I'm guessing that your repayments would be about €850. If this were to increase to say €950, how easily would you manage?

You will have bills (life cover, home insurance, LPT, etc.)!

The repayments would only be 850 at 5.75%, i.e. a stress tested amount. 45k is plenty to pay that anyway.

OP, you're well capable of repaying the mortgage, whether to fix or not is basically a gamble on the market. It might pay off or not, but you're not going to run into trouble by not fixing.

brian2614

kbannon wrote: »

I'm guessing that your repayments would be about €850. If this were to increase to say €950, how easily would you manage?

You will have bills (life cover, home insurance, LPT, etc.)!

The break down is

Variable rate 3.75% = €695
1 year fixed 3.50% = €676
3 year fixed 3.65% = €687
5 year fixed 3.80% = €698

3.50% appeals to me has its the cheapest but I think 3.65% is enough for me.Do you think rates will increase???

Michael D Not Higgins

Also worth considering BOI/PTSB for the 2% cashback deal.

SarahMollie

I'd be inclined to go with the cheapest rate, if you're relativly secure.

Now I got my mortgage with BOI and they actually incentivised be to fix up to 3 years so thats what I went with.

I wold point out that the first year of owning is by far the most expensive. Youve to furnish (bed, sofa, tv, kitchen utensils, pots and pans.....the list goes on) and you may find other things will come up along the way that were unforeseen costs.

For example I viewed my property first around June, all was dandy. Roll on moving in in November to discover that the french doors at the back were letting in water and losing heat. Now I managed to find a guy to service them online and that fixed the problem relatively cheaply €130, but for a while there I thought I'd need to get the door replaced.

This is only one of the many unexpected jobs that I've ended up paying for in the past 3 months.

How well equipped are you to cope with unscheduled expenses?

SarahMollie

brian2614 wrote: »

The break down is

Variable rate 3.75% = €695
1 year fixed 3.50% = €676
3 year fixed 3.65% = €687
5 year fixed 3.80% = €698

3.50% appeals to me has its the cheapest but I think 3.65% is enough for me.Do you think rates will increase???

The spread here is not even €20 per month. You're going to have bigger things to deal with as a home owner over time so I wouldnt be too worried about this.

Rates will rise internationally eventually as they've been so low for so long, but they're artificially high here at the moment anyway as banks try to return to profit. If more competition enters the market here, that will hopefully stop our own banks from being able to charge a premium indefinitely.

brian2614

Michael D Not Higgins wrote: »

Also worth considering BOI/PTSB for the 2% cashback deal.

Rates are higher @ 4.20% variable

newacc2015

Generally you only fix if you think rates will go up. I cant see any reason why they would increase. The FED in America was reluctant to hike rates and their unemployment is 5%, they actually have inflation and decent economic growth. The eurozone is pretty much the opposite of America. High unemployment, deflation and no strong growth, you cant increase the ECB rate during this. Even if all these indicators were good, you probably wouldnt increase the rates for a year or two to prevent killing the new growth

Fixing mortgage is kinda of futile in Ireland. In America or Germany (pretty every country) you can get long term fixed mortgages of 20 years. Where BOI recently released a 10 year fixed mortgage (which has significantly premium rates) and it was seen as groundbreaking. Yet with the large difference between the variable rate and the fix rate, there is real incentive to consider taking it.

I would go for variable. I cant see these high interest continuing to last. Especially if the Irish CB eases mortgage lending rules and banks actually want to compete for business next year. I wouldnt consider fixing longer than 1/2 years if you really want to fix.

Michael D Not Higgins

SarahMollie wrote: »

The spread here is not even €20 per month. You're going to have bigger things to deal with as a home owner over time so I wouldnt be too worried about this.

The spread is €20 now. It could be €100 in two years time, but that's speculation and the gambling on the market that you take part in.

brian2614

Great advice so far lads,really interesting points.

Fix for the 1st year or 3 am thinking now!!!:)

SarahMollie

Michael D Not Higgins wrote: »

The spread is €20 now. It could be €100 in two years time, but that's speculation and the gambling on the market that you take part in.

But now is when he has to choose. Even if he went for the most risk adverse option of 5 years fixed, hes still spending only an extra €20 per month, worst case.

Its a bit of a non issue. If you can afford the repayments and are risk adverse, then fix for as long as possible.

TitianGerm

For me one of the main reasons I can see the bank offering a lower fixed rate over the variable rate at the minute is that they themselves believe the Variable rate to drop in the coming months.

If the variable falls below the fixed the bank makes more money with people signed into FR.

They will never offer a FR for three years at say 3% if they believe that interest rates will rise above this as they will loose money.

Just my thoughts anyway.

koheim

Ireland still have Europa's highest variable interest rates, in my opinion they can only go down the next 5 years.

Mind you, I am with BOI and just fixed for 3 years at 3.6%. This saves us 100 Euro a month! But in 3 years time I am pretty sure that there are better rates out there. We will switch bank if BOI continue to hold us ransome..

Interest rate above 3% is only available in Ireland, extra tax is all it is.

SarahMollie

koheim wrote: »

Ireland still have Europa's highest variable interest rates, in my opinion they can only go down the next 5 years.

Mind you, I am with BOI and just fixed for 3 years at 3.6%. This saves us 100 Euro a month! But in 3 years time I am pretty sure that there are better rates out there. We will switch bank if BOI continue to hold us ransome..

Interest rate above 3% is only available in Ireland, extra tax is all it is.

I'm in exactly the same position as you - same bank, same rate, same duration. Will shop around as soon as my fixed period is over. I expect there to be more competition in the market by then.

spaceHopper

I'd fix for one year as it's the lowest rate, then I'd set a nominal amount that I pay every month say 900, x to mortgage and y to savings at the end of 1 year you can either fix again or go SVR but you could also make an over payment from the extra savings or spend them on a holiday! If rates got up you will have a good buffer to before it it hits the 900

handlemaster

brian2614 wrote: »

The break down is

Variable rate 3.75% = €695
1 year fixed 3.50% = €676
3 year fixed 3.65% = €687
5 year fixed 3.80% = €698

3.50% appeals to me has its the cheapest but I think 3.65% is enough for me.Do you think rates will increase???

I would fix . The payments arent that much différent and the only way is up from here regarding rates

koheim

handlemaster wrote: »

I would fix . The payments arent that much différent and the only way is up from here regarding rates

Wonder where you get that logic from? Ireland has the highest interest rates (for mortgages) in Europe, so the rates will have to go down in next few years there is no way around that. France, Germany and Spain have variable interest rates around 2.3% They are even lower in some Nordic countries.

SarahMollie

koheim wrote: »

Wonder where you get that logic from? Ireland has the highest interest rates (for mortgages) in Europe, so the rates will have to go down in next few years there is no way around that. France, Germany and Spain have variable interest rates around 2.3% They are even lower in some Nordic countries.

+1

We're paying the highest interest in Europe.

Problem is our banks are trying to return to profit, so this is unlikely to change unless other market factors change.

What I'd like to see is new enterents coming into the market, offering mortgages at lower rates. Thats the only way they're going to come down in the country, as none of the native banks will want to compete heavily on price.

Michael D Not Higgins

koheim wrote: »

Wonder where you get that logic from? Ireland has the highest interest rates (for mortgages) in Europe, so the rates will have to go down in next few years there is no way around that. France, Germany and Spain have variable interest rates around 2.3% They are even lower in some Nordic countries.

And if the European rates go up, where do you think the Irish rates will go? Sure, if the rates across Europe stagnate for a few more years, then the Irish rates might drop a bit further but the isolation of the market from the rest of Europe ensures the banks can keep the interest rates inflated above the rest of Europe almost indefinitely.

koheim

Michael D Not Higgins wrote: »

And if the European rates go up, where do you think the Irish rates will go? Sure, if the rates across Europe stagnate for a few more years, then the Irish rates might drop a bit further but the isolation of the market from the rest of Europe ensures the banks can keep the interest rates inflated above the rest of Europe almost indefinitely.

Do not understand this logic either. It is clear that the Irish Banks follow the Europeans rate trends, because then we would already be at 2.3%

handlemaster

koheim wrote: »

Wonder where you get that logic from? Ireland has the highest interest rates (for mortgages) in Europe, so the rates will have to go down in next few years there is no way around that. France, Germany and Spain have variable interest rates around 2.3% They are even lower in some Nordic countries.

They were the highest and always have been. Coming out of a financial melt down where they werent reduced ,no reason why they would start now.as with everything in Ireland paddy rips paddy apart

SarahMollie

koheim wrote: »

Do not understand this logic either. It is clear that the Irish Banks follow the Europeans rate trends, because then we would already be at 2.3%

If ECB rates go up, then their current margins would be impacted. They're using these huge margins to cover some of the losses from the bust.

enviro

handlemaster wrote: »

They were the highest and always have been. Coming out of a financial melt down where they werent reduced ,no reason why they would start now.as with everything in Ireland paddy rips paddy apart

Interesting point, how do the rates compare intentionally?

Millem

We got offered the same rate with AIB and fixed for 5 years. We have a 2 year old so wanted certainty

newacc2015

Michael D Not Higgins wrote: »

And if the European rates go up, where do you think the Irish rates will go? Sure, if the rates across Europe stagnate for a few more years, then the Irish rates might drop a bit further but the isolation of the market from the rest of Europe ensures the banks can keep the interest rates inflated above the rest of Europe almost indefinitely.

Why would they go up? The European Economy is horrific and with the some of the biggest trading partners of Germany seriously struggling ie China and Russia. Even the economic powerhouse of Germany might be trouble. Yes rates have to go up eventually. But there is no chance of it happening in the next 2/3 years.

If we have 2/3 more years of house prices increasing and wages increasing. Tens of thousands will be in a position to refinance and banks will have to cut rates to compete for new business. I cant see huge numbers of new mortgages. But there is the potential for a lot of refinancing.

You could see a new entrant to the Irish market. When you are can make massive profit margins on Irish mortgages relative to the European norm. There is the potential for a new entrant to the market. I know there is the difficulty repossessing mortgages. Even factoring that risk, the profit margin is still huge here

Michael D Not Higgins

newacc2015 wrote: »

Why would they go up? The European Economy is horrific and with the some of the biggest trading partners of Germany seriously struggling ie China and Russia. Even the economic powerhouse of Germany might be trouble. Yes rates have to go up eventually. But there is no chance of it happening in the next 2/3 years.

If we have 2/3 more years of house prices increasing and wages increasing. Tens of thousands will be in a position to refinance and banks will have to cut rates to compete for new business. I cant see huge numbers of new mortgages. But there is the potential for a lot of refinancing.

You could see a new entrant to the Irish market. When you are can make massive profit margins on Irish mortgages relative to the European norm. There is the potential for a new entrant to the market. I know there is the difficulty repossessing mortgages. Even factoring that risk, the profit margin is still huge here

China is only the 4th largest export market for Germany (and they import more from China than they export to them) and Russia doesn't even feature in the top 10.

It seems to me we already had new entrants to the market and they cut their losses and left the country, Danske, RBS, et al. and no-one has stepped into their shoes yet.

newacc2015

Michael D Not Higgins wrote: »

China is only the 4th largest export market for Germany (and they import more from China than they export to them) and Russia doesn't even feature in the top 10.

It seems to me we already had new entrants to the market and they cut their losses and left the country, Danske, RBS, et al. and no-one has stepped into their shoes yet.

Germany has a trade deficit of only €5bn with China which is relatively small compared to most countries. China is still one of the largest buyers of German cars which is the backbone of the German economy. Any slowdown in China, will hit car making and machinery manufacturing hard. Germany dragged their heels on sanctions with Russia, as it an important market for their goods(they were pretty much the only country against sanctions) .

These banks made huge losses with poor loan making decisions. That doesnt mean a German bank with better lending rules wont take advantage of the huge difference between German and Irish mortgage rates

Michael D Not Higgins

newacc2015 wrote: »

That doesnt mean a German bank with better lending rules wont take advantage of the huge difference between German and Irish mortgage rates

So why haven't they?

Worth remembering that you can't overpay while on a fixed rate so of you have any plans to do so keep this in mind.

murphaph

Michael D Not Higgins wrote: »

So why haven't they?

Because the risks of Irish mortgage lending are higher than German mortgage lending. Also because you need a legal department at the very least operating in Ireland to lend into the Irish mortgage market. Can't appear before the judge in Germany for a default on an Irish mortgage. It just isn't worth it....it's a different ball game than offering a current account.

Michael D Not Higgins

murphaph wrote: »

Because the risks of Irish mortgage lending are higher than German mortgage lending. Also because you need a legal department at the very least operating in Ireland to lend into the Irish mortgage market. Can't appear before the judge in Germany for a default on an Irish mortgage. It just isn't worth it....it's a different ball game than offering a current account.

Exactly my point. The risks are too high and expecting the rates to come down to European levels would require a functioning market with functioning repossession facilities.

koheim

Michael D Not Higgins wrote: »

Exactly my point. The risks are too high and expecting the rates to come down to European levels would require a functioning market with functioning repossession facilities.

Why are the risk in Ireland higher than rest of Europe? I do not get that. Ireland is a very open economy and I thought banking sector is working well now?, but one thing that is massive different from rest of Europe is the extremely high interest rates for mortgages. European average is 2.3% !!
Irish banks is making existing customers pay for their mistakes, even after get bailed out.

Michael D Not Higgins

koheim wrote: »

Why are the risk in Ireland higher than rest of Europe? I do not get that. Ireland is a very open economy and I thought banking sector is working well now?, but one thing that is massive different from rest of Europe is the extremely high interest rates for mortgages. European average is 2.3% !!
Irish banks is making existing customers pay for their mistakes, even after get bailed out.

Because there's relatively no repossessions. The banks are covering the costs of mortgages that are under water and passing the cost to everyone else. The risk of a new entrant being unable to chase a defaulter for the asset is not worth it.

brian2614

Thanks again for all the advice people,much appreciated.

murphaph

Michael D Not Higgins wrote: »

Because there's relatively no repossessions. The banks are covering the costs of mortgages that are under water and passing the cost to everyone else. The risk of a new entrant being unable to chase a defaulter for the asset is not worth it.

^^ this and the fact that Irish property prices are unstable. Much more so than German property prices. The property is the security. If the value of the security is unstable, it might be worth less than the loan secured on it when it gets defaulted on. The Irish market is also tiny.

athtrasna

This thread really belongs in banking and insurance as it's significantly more about banking and interest than it is about property so moving from A&P

Athtrasna

Trish56

Brian2614, Have you considered taking a split package mortgage as in fixing 100k and 35k variable with the view of having the security of knowing your monthly repayments over the fixed period and have the opportunity of paying lump sums off the variable portion.

Personally I believe that we will see ECB interest rates starting to rise in about two years and as our greedy banks have not passed on the ECB reductions over the last 5 years I'm sure they will have no problem passing on the increases. If you fix for 3 years now at 3.65% to Jan 2019 and variable rates increase by 1% in the interim, you will be looking at a variable rate of 4.75% on expiry. Be careful if you decide on a 1 year fixed that you go back on a Loan to Value variable rate as some banks will put you on their standard variable rate which is higher than the loan to value variable rate.

brian2614 wrote: »

Thanks again for all the advice people,much appreciated.

brian2614

Trish56 wrote: »

Brian2614, Have you considered taking a split package mortgage as in fixing 100k and 35k variable with the view of having the security of knowing your monthly repayments over the fixed period and have the opportunity of paying lump sums off the variable portion.

Personally I believe that we will see ECB interest rates starting to rise in about two years and as our greedy banks have not passed on the ECB reductions over the last 5 years I'm sure they will have no problem passing on the increases. If you fix for 3 years now at 3.65% to Jan 2019 and variable rates increase by 1% in the interim, you will be looking at a variable rate of 4.75% on expiry. Be careful if you decide on a 1 year fixed that you go back on a Loan to Value variable rate as some banks will put you on their standard variable rate which is higher than the loan to value variable rate.

Do banks offer split mortgages?

Trish56

Yes, you can go variable for part and fixed for part and you can also have two different terms i.e 100k fixed over 25 years and 35k variable over 15 years.

brian2614 wrote: »

Do banks offer split mortgages?