Should we switch from AIB?

Hi, I'd really appreciate some advice on whether we should switch mortgages or not. We bought in 2012, with a €180k mortgage through AIB on a house costing €210k. Our variable interest rate is now 3.4%. We got the house estimated a few months ago, and it is now worth about €390k. We now have a mortgage of almost €154k left, and would appreciate advice on whether we should switch to another mortgage provider to get a lower interest rate and, if so, any recommendations of who to switch to?

We also have saving of about €10k and are considering buying a small apartment in Dublin 7 as an investment, but we are unsure if it is the right choice, should we repay our mortgage with our savings instead?

You could reduce your rate to 3.0% (variable) if you switched to KBC and they will pay you €2,000 to switch, which should more than meet your legal and valuation costs.

Is it worth the effort? Probably just about but it's worth asking AIB if they will allow you to move to a lower LTV band.

I take the view that, in most circumstances, it only makes sense to invest outside a pension vehicle after:-

1. You have built up a cash reserve equivalent to around 6 months' of your normal household expenses; and
2. You have paid off the mortgage on your PDH.

In any event, it practically never makes financial sense to invest in a leveraged rental at current BTL rates.

Thanks Sarenco, you mentioned the BTL rate is high, but is that tax deductible from your rental income? It is high, 6% or so I think.
I think speaking with AIB about our LTV rate is a good idea, I tried a year ago by phone, but we didn't have the house valued at that stage, probably best to make a face to face appointment maybe.

Sarenco said:

You could reduce your rate to 3.0% (variable) if you switched to KBC and they will pay you €2,000 to switch, which should more than meet your legal and valuation costs.

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Yes this is true. However, until very recently KBC did not pass on cuts to existing customers, and even now they have not yet provided any real detail on how this will work. I spoke to them last week and was advised it would be this week or next before anything would be available. I would definitely not move to KBC until this issue has been clarified.
On the other hand AIB have been fairer in recent history at least towards variable rate mortgage holders. It is worth asking them if they will allow you to change your LTV band - I would try over the phone first to test them out.

Before you have a follow-up face to face with them (assuming you need to), it may be worth getting approval in principle from say KBC and Ulster Bank showing you are serious about switching in the event they don't allow you to move. Getting approval in principle does not take much time and does show that you are serious about switching and are in a position to switch.



Agree re rental - most of the advice on here is its not really worth the effort.
That said if BTL needs say a 30% deposit (CB rules), a 10k deposit means you will only get a mortgage of around 25k so have 35k to spend. Don't think D7 is that cheap at the moment

Agree with GNF re KBC but it's probably not worth getting too worked up about either way.

It probably makes sense to switch on paper but any gain is going to be relatively modest given your current rate and mortgage balance. Having said that, it's definitely worth pushing AIB to let you move onto a lower LTV bracket and an AIP from KBC would certainly be a persuasive factor in that negotiation.

Bear in mind that (from next year) it's only 80% of the mortgage interest (not the principal) payments that are deductible for tax purposes. i have yet to see a case where it makes financial sense to borrow at current BTL rates to invest in a rental when you look at current yields and tax rates. In any event, GNF is right that €10k is really too small a deposit.

Paying down your PDH mortgage gives you a guaranteed return equivalent to your mortgage rate, with no fees, costs or taxes. That's hard to beat in the current environment.

Thanks for the advice both of you, it's much appreciated. As suggested, I'll get approval to switch mortgage from another bank and then speak to AIB.

Would you not try switching to EBS which would give you 2% cash back or €3,000.

If doing so, then don't pay the €10,000 savings off the mortgage until after you have switched.

I've just looked on bonkers.ie and compared switching mortgages, the best value seems to be KBC (€3k towards legal fees and 3% interest) and AIB (3.1%, but nothing towards legal fees). Obviously, we can't switch to AIB as we are with them now, but they may offer something similar to us. EBS seems to be higher than what we are on now, but I'll do more research. Good advice about waiting to switch before paying anything off the mortgage, thanks.

KBC should be avoided as they have it in their new terms and conditions that they reserve the right not be pass on rate cuts to existing customers.

Brendan

Well, if KBC don't pass on future cuts (if there are any) to existing customers, then a borrower in the position of daraclare could always switch again to whichever lender is offering the best deal at that time.

I still think the best approach is to look for AIP from KBC and then push AIB to allow you to move to a lower LTV band. If they won't budge then you can switch to whichever lender is offering the best deal at the time.

As an aside, it seems odd that AIB won't let borrowers move LTV bands (unlike KBC and UB).

Sarenco said:

I still think the best approach is to look for AIP from KBC and then push AIB to allow you to move to a lower LTV band. If they won't budge then you can switch to whichever lender is offering the best deal at the time.

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Yes and no here. Not everyone will be in a position to switch regularly, and not everyone would have the time to do so. If you believe there may be an interest rate cut coming then I 100% agree with the above approach.
That said, if you switch to KBC, be prepared to switch away from them again relatively quickly. As Brendan said, their new T&C's are worth a look.
I would hope AIB could be sensible enough to want to keep you as a customer and offer you the lower rate. You could always open a formal complaint with them and see if that moves things along any bit.

daraclare said:

We bought in 2012, with a €180k mortgage through AIB on a house costing €210k....... We got the house estimated a few months ago, and it is now worth about €390k.

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Are you 100% comfortable in the valuation? It is a very high jump of 85% in the 4 years - I would have expected it to be closer to 50% jump in that window. This may be the opinion of one estate agent, but are there other similar ones around selling at that price to support it. Bank valuers may be a little more conservative than your current one.

Hi all, in case anyone is interested, or thinking of doing the same, here's an update.

Our mortgage is €148k and the house was valued at €400k in September 2016. After a few months of dealing with various individuals in AIB, we finally got our interest rate down from 3.3% to 3.1%, which is the lower LTV >=50% rate. This means that when AIB reduce their rates next month, November 2017, our interest rate will be 2.75%.

It was painful to deal with the banks, and it took a while to find someone who knew whether what we wanted was even possible. However, it means our mortgage is €40 less a month, and I think we'll save a few grand over the course of the mortgage, so it cost us nothing and was worth it in the end.

Well done you!

And thanks for reporting back to us - it is very helpful.

I called AIB this morning as am interested in moving from a standard variable rate to LTV band. They asked had I ever been on an LTV rate and I said no, so the process seems very easy - just get the valuation done and send in a signed letter stating you wish to move.
On foot of this thread, I also asked about moving between LTV bands and they said that is not possible. I said there is evidence online and mentioned this site that people have been allowed to move between bands. She said, you need to put together a business case to be allowed move and that it would most likely not be successful. I asked is the policy the same for PPR and BTL properties and she said yes.
I asked her to send out the repayments based off the various rates available so I could review and I'll create a separate thread to see if it's worth looking at switching either within AIB or to another lender.

boe said:

They asked had I ever been on an LTV rate and I said no, so the process seems very easy - just get the valuation done and send in a signed letter stating you wish to move.

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Correct, the process is very easy if you have not been on a LTV rate previously. You just need to be strategic about your request and if you think you are borderline on a LTV threshold, you should potentially wait or switch to someone else first.

boe said:

On foot of this thread, I also asked about moving between LTV bands and they said that is not possible. I said there is evidence online

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I had this exact same discussion with BOI when I was with them. It went on for a few weeks/months before they eventually allowed me to reduce my rate. I was SVR going to LTV back in 2015 - LTV was <50% at the time. I did state at the time that online forums were stating it was possible and they basically said they were lying, before retracting this and saying they would look at my case. Then then allowed me to change rates.
I think AIB and BOI may have a policy around not allowing people to switch bands, but will break them if the case is compelling and they think the person will switch (or move other products away from them).

I have found KBC to be the opposite and no negotiation at all with the rules being the rules !!
Not sure which scenario I prefer

boe said:

I asked her to send out the repayments based off the various rates available so I could review and I'll create a separate thread to see if it's worth looking at switching either within AIB or to another lender.

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Personally, everything else being equal, I believe AIB is the best bank to be with when your LTV is <50% as they have committed to pass on interest rate cuts to their customers. Whether you need to go to another bank first, and then switch back to AIB at that stage is debatable depending on the size of your mortgage and/or current interest rate.
EBS - currently not passing on cuts
KBC - currently passing on cuts subject to valuation but will not commit to it in the future (offer can be withdrawn)
BOI - not cutting variable rates and encourage you to fix
UB - Say they treat existing and new the same, but have introduced amounts into their mortgage offers, so if you go below that amount you cannot avail of that offer. At some point it will impact the borrower !!
PTSB - not 100% sure what they are doing to be honest

Some good advice there gnf_ireland. We currently owe 185k with house worth approx 320k. We paid a lump sum earlier in the year and hope to do the same next year. I'm going to hold out switching until I have an LTV < 50%.