DariaKozak
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Hi, are there any banks that offer 20 years fixed-rate mortgages to first buyers in Ireland?
20 years fixed rate mortgages?
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Brendan Burgess
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No. And the rates would be very high.
I would expect them to be offered in the coming years.
Brendan
I would expect them to be offered in the coming years.
Brendan
NoRegretsCoyote
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Does anyone know why Irish banks don't offer them?
Not unusual elsewhere.
Not unusual elsewhere.
There's no demand.
It's only recently we've seen 7 & 10 year terms, and I understand low uptake for those.
The only product is the 'Rebuilding Ireland Homeloan', which is offered by the State, via local authorities, if you qualify for it.
Brendan Burgess
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There is no demand because of the very high rates.
If Irish borrowers could avail of 20 year fixed rates at 1.95%, there would be plenty of demand.
Brendan
Yes, of course. And if they were 0% there'd be even more demand!
There was never a material demand for long term fixed rates here, even when rates were competitive pre 2008.
think they are not offered because bank lending here has traditionally been financed by deposits which are inherently short term and therefore a risky source of finance for long term fixed rate mortgages from banks' perspective. These products are much more common in banking systems where lending is financed by bonds like Denmark.
NoRegretsCoyote
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I wonder if the supply side plays a part as well.
If you look at these , the yield curve rises slower than it does in Ireland. For a low LTV 1-year is 1.22%, 5-year is 1.29%, 10-year is 1.34%.
Bank of Ireland it is 2.9%, 3.0%, and 3.3% for respective maturities.
I've often thought about fixing for peace of mind but have been put off by the cost.
Brendan Burgess
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That is interesting.
What were the rates back then?
We had trackers at rates like ECB +0.6% , so I think that variable rates were much more popular anyway.
brendan
Yes, it's not just about demand, but it's a big factor. If 20% of borrowers were looking for 15 to 20 year rates, then they'd exist.
Back in late 2017 KBC launched a sub 3% 10 year fixed rate. It was lower than their 5 year rate, and based on wholesale curves at the time was the lowest margin of any product on the market. The rate has crept up a bit since, but I don't know how popular the product was.
If we look back historically, there were long term fixed rates in Ireland. I know my parents had a fixed rate from 1975 for 30 years, but at very high rates. It protected them from the huge rates in the 80's, but people overlook that and just see that by the end they were paying a very high rate.
Another difference between here and markets like Germany, is that home ownership is both higher, and people are more inclined to move. The average actual length of a mortgage here is a lot shorter than people would think.
We're a lot more like the UK market than we'd like to admit. 15 year fixed rates in the UK disappeared in 2009, and just made a reappearance in 2019, and were really advertised as an 'insurance' against rate rises.
March 2007 as an example:
AIB SVR was 4.95%, while their 10 year fixed was 5.23%
The discounted tracker was 4.89% (LTV > 89%)
Honestly, it's the first time in 20 years working in banking that I've heard that.
You realise that regardless of whether it's fixed or variable the bank still needs to fund it for the full term?
This Central Bank issued an interesting report last year called 'Fixed-rate mortgages: building resilience or generating risk?' (you'll have to search and download it I'm afraid because ABM won't let me post the link) which makes the same argument about the availability of long term fixed rate loans in Denmark. It also interesting explanation of why they are also widely used in the USA but not to date in Ireland.
Here is the CBI document.
It hints as to why Ireland can't have long term mortgages as cheap as some other countries, which have either government guarantees on default, or manage to take the risk off balance sheet. But there's nothing stopping Irish banks issuing longer term fixed rates. The risk can be managed through interest rate swaps, but the price is added to the rate.
It hints as to why Ireland can't have long term mortgages as cheap as some other countries, which have either government guarantees on default, or manage to take the risk off balance sheet. But there's nothing stopping Irish banks issuing longer term fixed rates. The risk can be managed through interest rate swaps, but the price is added to the rate.
NoRegretsCoyote
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The CBI report explains a lot indeed:
After nearly a quarter century of the euro, I've wondered why Ireland's mortgage market doesn't look more European. I think you're right that it must be something to do with demand-side preferences being more British.
You're right too about average term being short. If a) you weren't a FTB between 04 and 09; and b) are still in a job; then you will probably be able to overpay.
It's not scientific of course, but AAM gets a lot more queries from people looking to pay mortgages off quicker than it does from people in financial distress.
I think it was only in 2019 for the first time in a decade did new mortgage lending exceed capital being paid down.
After nearly a quarter century of the euro, I've wondered why Ireland's mortgage market doesn't look more European. I think you're right that it must be something to do with demand-side preferences being more British.
You're right too about average term being short. If a) you weren't a FTB between 04 and 09; and b) are still in a job; then you will probably be able to overpay.
It's not scientific of course, but AAM gets a lot more queries from people looking to pay mortgages off quicker than it does from people in financial distress.
I think it was only in 2019 for the first time in a decade did new mortgage lending exceed capital being paid down.
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I've had four mortgages over my lifetime and all of them never went full term
Apart from the last one all were repaid early because I was moving house and I wasn't allowed to transfer the mortgage
Don't know if that has changed now but it could be a reason why
"The average actual length of a mortgage here is a lot shorter than people would think"
Most of my friends would be similar as in early fifties and on their third property
But I was always told by my piers when looking for advise on mortgages, variable and fixed rates, that over the long term the variable rate is always the cheapest
Fixed rates are great in the short term, that over one, two or three years you are certain of you repayment amount
My own experience in and around 1993, I fixed for one year at 10% a month before the rates went through the roof (iirc they hit 20%)
Talking to my cousin he had just fixed for ten years at a similar rate as was very happy with himself but that didn't last long
because as quick as the rates went up they came down again and kept falling for the next ten years
Don't know if the advise still applies today but I wouldn't consider fixing for longer than three to five years max
Apart from the last one all were repaid early because I was moving house and I wasn't allowed to transfer the mortgage
Don't know if that has changed now but it could be a reason why
"The average actual length of a mortgage here is a lot shorter than people would think"
Most of my friends would be similar as in early fifties and on their third property
But I was always told by my piers when looking for advise on mortgages, variable and fixed rates, that over the long term the variable rate is always the cheapest
Fixed rates are great in the short term, that over one, two or three years you are certain of you repayment amount
My own experience in and around 1993, I fixed for one year at 10% a month before the rates went through the roof (iirc they hit 20%)
Talking to my cousin he had just fixed for ten years at a similar rate as was very happy with himself but that didn't last long
because as quick as the rates went up they came down again and kept falling for the next ten years
Don't know if the advise still applies today but I wouldn't consider fixing for longer than three to five years max
Coldwarrior
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Americans seem to move location/home fairly often too, at least the one's I know, how do break fees work for them on long term 20/25/30 year fixed mortgages, I would have thought it'd be fairly punitive?
Update: This Federal Reserve site seems to answer my question:
" Prepayment penalty. Some lenders charge a fee if you pay off your existing mortgage early. Loans insured or guaranteed by the federal government generally cannot include a prepayment penalty, and some lenders, such as federal credit unions, cannot include prepayment penalties. Also some states prohibit this fee.
Cost range = one to six months' interest payments "
A max of 6 months interest to break from a 20 year fixed rate seems very reasonable.
Update: This Federal Reserve site seems to answer my question:
" Prepayment penalty. Some lenders charge a fee if you pay off your existing mortgage early. Loans insured or guaranteed by the federal government generally cannot include a prepayment penalty, and some lenders, such as federal credit unions, cannot include prepayment penalties. Also some states prohibit this fee.
Cost range = one to six months' interest payments "
A max of 6 months interest to break from a 20 year fixed rate seems very reasonable.
I think it's a bit more complicated than that, although I'm not familiar with the US market. My understanding is that people 'move' the mortgage to the new property when they move - you'll often hear US people referring to a 2nd mortgage on their property.
In terms of break fee, there is a 'yield maintenance' calculation on fixed rate mortgages, which is largely similar to how break fees are calculated here.
Coldwarrior
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Interesting thanks, I assume the second mortgage then would have the be with the same bank as the original mortgage. Is there a reason Irish banks don't allow you bring your mortgage with you like this after trading up?