+2% Stress Test: A Barrier to Switching

Joe90

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After finally getting pure fed up of being fleeced by PTSB at 4.2%, I went shopping around this week for a new lender. The LTV of our property has finally hit 80%, and Mrs Joe has now got secure employment.
I looked at the calculators online for €294K over 22yrs, decided that 3 year fixed is what suited our needs the most. PTSB offer of fixing at our current rate is laughable, looked at BOI and Ulster Bank with great interest, was contacted by very courteous gentleman from BOI and then had a meeting with excellent mortgage advisor at UB.

Currently paying €1625 pm at PTSB, the UB advisor went through options and the 3.2% Fixed Loyalty Plus product was coming in at €1552 pm before tax relief, and a full 1% cheaper. Computer says no, however. The BOI passed on us, but did not specify why.

We tick all of the boxes. No loans, no bad debts, no childcare costs both in public sector. Value of property is increasing in desirable area. We overpay the PTSB mortgage each month, and earn €75K p.a. between up. The decline was on the basis of the mandatory central bank stress test for repayments 5.2%.

This decline has really annoyed me. I can understand the fundamentals behind the +2% interest stressor, and we would cut the cloth to the measure if the variable rate we hold now was to increase. Surely if we are paying less over 3 year period, an increased additional interest can't be applied?

Right now, on a crucifying variable rate with PTSB, we are vulnerable to them hiking up the interest rate to that same 5.2% figure that prevents us fixing. This might seem unlikely, but it is a reality that we have to live with. I feel that we are totally at the mercy of our current lender, and have not got any alternative but to continue to be robbed over a significant portion of the remaining 22 years of the mortgage.

Sorry for the long post, need to get this off my chest today. I am waiting for the decline letter from UB,, don't know what I will do after that....
 
Hi, what age are you both?

Depending on your age, you could possibly get for a longer term to pass the stress test, and then reduce the term?
 
Hi Joe

Maybe check with the Central Bank to confirm that the stress tests apply to switchers?

There is no reason why they should.

Brendan
 
We are both 47.

The UB representative was aware we are switching, and processed the application as a switcher....
 
Hi,

Firstly, the stress test applies to ALL mortgages, including switchers. It's covered in the Consumer protection code rather than specific mortgage policies which do not apply to switchers / refinance.

From CPC:
"in the case of all mortgage products provided to personal consumers, the results of a test on the personal consumer’s ability to repay the instalments, over the duration of the agreement, on the basis of a 2% interest rate increase, at a minimum, above the interest rate offered to the personal consumer. This test does not apply to mortgages where the interest rate is fixed for a period of five years or more."

Unfortunately your age counts against you as you cannot extend the term as I had suggested earlier since you're already bring it up to 70 years of age.

However, I've run some numbers, and I think you're a border-line case. My understanding is that you would need to have 2,500 left each month after mortgage repayments. Going on the salary you've indicated, you should have that based on the higher repayments? They might be applying a 2nd criteria in that your repayments would be >40% of your net income. It might be worth you clarifying the criteria with UB, to see if there are any other commitments they have factored into the calculation (e.g. they might be treating life assurance as a commitment).

Otherwise, you could go for the 5 year loyalty rate (3.3%) which means the stress testing isn't done, and you should pass all the criteria.
 
Good spot - I always forget about all the different rates they have!
That'd bring the monthly repayments down to 1,537

Any more reductions and @Joe90 will owe us a drink! :)

Actually Joe, I think the adviser was using the wrong rates for you. The Loyalty Plus rate for 3 years is only 2.99%, so the stress test should be at 4.99%.
 
Thanks for clarifying.

It makes no sense though. As the heading says, it's a barrier to switching.

Brendan
I agree from a consumer protection stand point - you're already in debt so it's not getting any worse.

I don't know if CBI sets out how a bank must assess the affordability with the stress rate, but rather that it must be assessed.

CBI aside, I think all banks now use it as part of their underwriting assessment, so even if it wasn't mandated, we'd still have it. It's not mentioned much in any of the CBI feedback submissions I've ever taken a look at.
 
The only snag is that KBC have a requirement that a mortgage must be cleared by 68 so Joe might need to shorten the loan term by a year or two.
 
Wow I did not expect such detailed responses so quickly! Thank you for your time and consideration of our case.

I took another look at the Mortgage Quotation - Quick Quote. The property value that the UB advisor used is €340K, which was on the conservative side of the values in my area right now. Would need to get to aboput €367K for the 5 year 3.1% rate. So this is an 86% LTV figure. The 5 year Loyalty Plus 200K LTV <90% rate is 3.50% - will the CB's 2% stress test apply on this?

I'm not putting the champagne on ice just yet....
 
Hi, as far as I can work out, they don't need to do a stress test under CBI rules if you fix for 5 years.
However, they might have their own criteria over and over that.

Definitely try to get to <80% if you're fixing in to a rate for a while.
 
Thanks Red Onion. I will check their criteria with them.

The <80% figure is the goal, but as I live in a small estate, there are not many coming onto the market, and the houses in the adjacent estates are the ones I will be watching...
 
It'll cost around 130 to get a valuation done. If you're thinking if switching it'd be money well spent - just get details from UB on who's on their panel of approved valuers.
 
Red Onion, do you have a link to the CB's regulations regarding stress testing of 5-year-fixed mortgages? I'd like to be able to forward it on to the attention of the mortgage advisor when asking about their valuation panel....
 
Thanks again, Red Onion.

My UB advisor said that they would be talking with an underwriter to see if there was anything they could do. I will keep ye all posted if there is any update. Would be interested to hear if this is widespread - are many other mortgage holders denied the opportunity to fix for 3 years due to CB regulation....
 
It's probably worth writing to Governor Lane.

He has changed some of the long standing practices of the Central Bank e.g. he seems to have told them to publish the correct mortgage rates in their monthly reports and to stop highlighting meaningless rates.

He might question why they stop people switching.

But then again, the lenders own underwriting criteria might not allow a switch, even if the Central Bank did not object.

Brendan
 
Well the UB representative rang back and informed me that the stress test only applies on 7 year mortgages. I pointed out to her that the appropriate regulation specifies that 5 year fixed rates are not covered by this, and asked her to ring the underwriters again.

In fairness to her, she rang me back in 20 minutes. Surprise, surprise it's Ulster Banks policy to stress test fixed rates up to 7 years, so we are not being considered for any fixed rate mortgage, and have to remain at our robbing banksters 4.3%. Not a lot she can do, but it highlights what I have said previously: it is the policy in this country by certain banks to keep those who bought in good faith at the height of the boom to keep them held hostage at variable rates on 4%+rates with no chance of switching.

I might write to Dr. Lane, but what can he really do about it? I was going to contact our TD Shane Cassells, as I can't deal with Peadar and I don't think Damien is up to it.....
 
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