90,000 could be in line for a mortgage rate cut following soaring house prices

Soaring home prices over the past two years mean thousands of homeowners are surprisingly eligible for lower mortgage rates.

It applies to some 90,000 homeowners who exhausted their mortgage between 2018 and 2020, according to the findings of the latest Irish Independent Doddl.ie Mortgage Change Index.

They will now be able to switch to lower mortgage rates for their new properties.

Doddl.ie chief executive Martina Hennessy said: ‘With house prices rising at over 10% a year, the opportunity now arises for those who bought as recently as 2020 to take advantage of rates lower loan-to-value mortgages, which could save them more than €20,000 over seven years.

She said mortgage interest rates start to get much more competitive at 80% loan-to-value, as banks scale their rates based on that calculation.

His comments come days after European Central Bank (ECB) President Christine Lagarde said a rise in European wholesale borrowing rates could not be ruled out this year.

A rate hike from the ECB would mean those with variable rates and homeowners exiting a fixed rate will face higher mortgage rates. But Ms Hennessy said recent owners were at an advantage.

“With double-digit housing inflation over the past few years, coupled with part of the loan being paid off, anyone who took out a mortgage in 2019 or 2020 with an initial 90% loan should be 80% ready to value now,” she said. “A loan worth 80% means a homeowner has accumulated 20% equity in their home.

“Now is the perfect time for these homebuyers to take advantage of very good long-term rates to lower their monthly repayments while protecting themselves against expected rate hikes in the future.”

Ms Hennessy said the Switch Index shows homeowners are unnecessarily paying an average of €4,308 in extra mortgage payments a year by not switching lenders.

There are still over 200,000 households paying off their mortgages at standard variable rates of up to 4.5%. But the lowest available rate is now a fixed rate of 1.95 pc. The index is based on the average mortgage taken for new loans in the first-time buyers and second-hand movers markets, currently €267,140.

The average rate on new mortgages in Ireland at the end of last year was 2.79%. However, in 2019, the average rate was slightly above 3%.

Ms Hennessy said: “There are huge savings to be made by switching mortgages – especially for people who have recently entered the market with higher rates and feel they cannot move for a few years.”

The average price of a three-bedroom semi-detached house in Dublin City was €425,833 two years ago. That amount has now risen to €471,667, she said.

With a mortgage of 90% and a term of 30 years, the buyer would now have a balance of €367,000. Their loan-to-value ratio would be 77%, which means they are eligible for a rate of 2.15% compared to their current rate of 3%. This represents a saving of €161 per month, or €13,524 over a fixed term of seven years, Ms Hennessy said.

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