Avant launches new mortgage fixed for 30 years at 2.85% to 3.1%

Thirsty

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3,450
Can a borrower get the best of both worlds here?

Earliest years of a mortgage are the biggest drain; so take the 30 year fixed at the outset.

Then in 10 years (or whatever) you'll either be trading up or ready to switch.

Yes, you'll pay some costs to switch, but after 10 years will it be onerous?
 

NoRegretsCoyote

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3,043
Are their operations so small they are not required to calculate Irish mortgages differently. In turn is there a limit where bankinter would be required to calculate numbers using historic Irish data. this might point to an upper limit on their involvement.
Avant can use the standardised approach or the IRB approach (I don't know which).

AFAIK for the standardised approach they would use risk weights provided by the Central Bank specifically for the Irish market.

Also AFAIK foreign bank can't use more favourable risk weights than incumbents.
 

Brendan Burgess

Founder
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44,653
They use the weights appropriate to Ireland and not Spain.

My understanding is that the standardised approach results in higher risk weights than the IRB.

But this is only part of cost of higher mortgages here. It is more of an excuse than an explanation.

For example, it does not explain why some banks have the same rates for all LTVs. I would assume that the model would require more capital for a 90% LTV mortgage than a 40% LTV mortgage.

It does not explain why permanent tsb and Bank of Ireland have lower rates for new customers than existing customers.

Brendan
 

letitroll

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170
The LGD assumptions banks need to make that are driving the models are way more onerous than people give the banks credit for. Especially when the extreme stress scenarios are run.

The average LTV’s of course matter and things are much better here in that regard but the length of time from first missed payment to acquisition/disposal of the property with the banks legal costs involved too make it so that the LGD, even in conservative LTV scenarios starting off, means the banks losses pile up in extreme stress test scenarios when the loan sits in FULL default for literally years….think of the trapped capital, opportunity cost of said capital. Foreign banks have looked at this - those that are here are leaving (Natwest/UB), those that aren’t are like no thanks.

In regard to competition and speaking about Avant joining the three remaining players (AIB/BOI/PTSB)……its not even close and wont be anytime soon. Retail presence matters for origination even in this digital age. Barring some big changes the future mortgage market mix in Ireland in say five years is going to look depressingly similar today with the majority of the UB/KBC share given over to AIB/BOI/PTSB.

Dont count on Avant being a committed player here long term, its my understanding, Avant are here in Ireland to help itself with a specific asset liability duration matching issues it has at the parent related to its insurance subsidiary and Ireland provided a unique opportunity in the European/EURO area to net some of those liabilities off (given our high rates vs Euro rates). If underlying ECB/sovereign rates rise in the core EU area and Avant can pick up 2% paper there it will.
 
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cremeegg

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3,560
Hi cremeegg

I am probably not explaining it very well, so let me ask you a very specific question.

Your 30 year old friend asks you for advice.

He is taking out a 30 year mortgage with Avant at 90% LTV.

They have insisted that he choose one or other of these two products. This is the only choice he has.

30 years fixed at 3.1%

20 years fixed at 2.75%

Which would you recommend?

Brendan
Well I would start by saying that having the option to fix for 20 or 30 years is not something that we have ever seen before in Ireland. This is a remarkable development in the Irish mortgage market

I would go on to say that not only is a 20/30 year fix a great new option, but that the rates being charged are in line with current variable and short term fixed rates. And that this surprises me as I would have expected that a new product like this would have come with a hefty price tag.

Sixteen years ago tracker mortgages were the new development in the Irish market. They were a great product. From todays perspective the difference between borrowers who took out mortgages in 2005 is between those who got trackers and those who didn't. Which tracker you got is largely immaterial. They varied, AFAIK, between ECB +0.5% and ECB +1.1%.

At these rates getting a fixed rate for the whole term of the mortgage is a great opportunity. There is little downside and there might be huge upside.

As to my 30 year old friend, undoubtedly if she can afford the repayments I would recommend the 20 year product, it is cheaper, it clears the mortgage more quickly and it leaves the borrower indifferent to rates more than 20 years from now.
 

kinnjohn

Registered User
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278
The 30-year-old friend or most people Might be better off going for a 30-year fixed mortgage and front-loading their pension and taking every cent they can in tax breaks,
Being able to get a 30 year fixed rate at around 3% at present and paying it off early and leaving pension tax breaks behind you is only for the very rich,

This is often not very well understood by well off people, for most both paying off their mortgage and paying into a pension will be a long working life process,

taking out long term fixed-rate mortgages that people can manage along with starting a long term pension that people can manage brings us more into line with other EU Countries,

one of the advantages is if you are unlucky enough to fall into Ill health and want have to retire early you can see your outgoings and Income up to your retirement, and beyond,
 
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cremeegg

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Underwriting standards and borrower behaviour have been dramatically better since about 2012, so over time the parameters used by the banks for their own internal models will improve too.
I know nothing about how banks do their underwriting, but from what I understand reading this and similar posts, it seems they reflect historic default rates rather than make any effort to look at reality.

Does this model make lending in 2013 when the average house prices were under €150k riskier than lending in 2021 when average house prices are over €250k ?
 

NoRegretsCoyote

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I know nothing about how banks do their underwriting, but from what I understand reading this and similar posts, it seems they reflect historic default rates rather than make any effort to look at reality.
Underwriting and risk weighting of loans are not the same thing.
 

Brendan Burgess

Founder
Messages
44,653
Hi Cremeegg

This is not that complex an issue.

But I am trying to untangle the issues one by one.


I will repeat the question - could you answer it and just it for the moment.

He is taking out a 30 year mortgage.

Would you recommend that he fixes for the 30 years at 3.1% or that he fixes for 20 years at 2.75%



He is taking out a 30 year mortgage with Avant at 90% LTV.

They have insisted that he choose one or other of these two products. This is the only choice he has.

30 years fixed at 3.1%

20 years fixed at 2.75%

Which would you recommend?

Thanks
Brendan
 

kinnjohn

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278
I think the Job a person taking out the mortgage is holding down and how secure it is along with pay and conditions will play an important part in deciding, who we are pitching long term fixed rates mortgages at,


let's say a public servant in a grade 3/4 job who will not see a higher grade until they retire or have their mortgage paid off will be given different advice than someone in a grade 3 job now who can see themselves in higher grades by the time they retire or have there mortgage paid off,



The same goes for a private-sector worker on let's say an average industrial wage (which Most workers are on the average industrial wage)

with little or no employer pension Contribution, where they have to contribute most to have the same pension as let's say a grade 4 public servant which should be their aim at retirement,it may make more since to go for a longer fixed term,

Again someone on an average industrial wage where the employer contributes more for a pension close to a grade3/4 public servant pension may go for a shorter term,

Again someone on higher wages and good conditions in the private sector may go for a shorter fixed mortgage,or one they can pay off in a shorter time frame,

If we are having a discussion about long fixed-term Mortgages and Making recommendations we have to know more about who we are advising,
 
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cremeegg

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Hi Cremeegg

This is not that complex an issue.

But I am trying to untangle the issues one by one.


I will repeat the question - could you answer it and just it for the moment.

He is taking out a 30 year mortgage.

Would you recommend that he fixes for the 30 years at 3.1% or that he fixes for 20 years at 2.75%





Thanks
Brendan
If he can afford the repayments he should go for the 20 years.
 

kinnjohn

Registered User
Messages
278
I would say
If he/she can afford repayments in good times and bad over mortgage lifetime,
 

Brendan Burgess

Founder
Messages
44,653
If he can afford the repayments he should go for the 20 years.

Clearly I am not explaining my question very well.

He is taking out a 30 year mortgage. That has already been decided.

the only issue is whether he should fix for 20 years or 30 years.

Brendan
 

kinnjohn

Registered User
Messages
278
Is there another chart Can he/she take out a 30-year Mortgage with Avant and fix it for 20 years, leaving another 10 years to be repaid after the fixed period of 20 years is up
The Chart on no 1 post clearly says
Fixed-term
I take Fixed-term meaning length of the mortgage, is the Contract open-ended,
 

Brendan Burgess

Founder
Messages
44,653
Ah, I had not realised that.

Apologies, Cremeegg. Crossed wires.

I had assumed that you could take out a 30 year mortgage and fix for 20 years.

That makes the decision trickier.

It seemed obvious to me that one should take out a 30 year mortgage and fix for 20 years.

Back to the drawing board...

Brendan
 

lff12

Registered User
Messages
417
Brendan,

You are over complicating the maths.

If you borrow €100,000 over 30 years your average outstanding balance is approx €66,000.

The difference between 3% and say 1.5% of €65,000 is €975 p.a.

The difference between 3% and 6% of €65,000 is €1,950, and it might run at much more than 6%.

I accept that other better 30 year fixed rate offers may come along soon. My point was not that this particular offer is the best, but that 30 year fixed rates at these very low rates (by historical standards if not by some European standards) are a brilliant product.

As for people regretting fixed rates, well I have posted on here in the past that Fixed Rates are a bad idea, unless you really need the certainty because the bank charges extra for giving you that certainty. That in effect getting a FR is betting the you know more than the bank about the course of future rates.

But this is different (spot the opportunity for a cheap shot, I know you wouldn't stoop Brendan) in 2 ways: 30 years rates have never been available in ireland in the past, and rates of 3% have more risk on the upside than on the downside.
I beg to differ. Rates could go up tomorrow. FR is excellent for someone in the early stages of a loan where they perhaps have come from years of rent hikes & would benefit greatly from fixed cost housing for x years. 30 years is pretty long for a loan, so the odds of rates going up in that time are far higher than they are if you take out a 15 year mortgage tomorrow.
 

Paul F

Registered User
Messages
96
Can anybody confirm that the 15- to 30-year Avant fixed rates are available to switchers? Or are they only available to first-time buyers?
 

lff12

Registered User
Messages
417
I think the Job a person taking out the mortgage is holding down and how secure it is along with pay and conditions will play an important part in deciding, who we are pitching long term fixed rates mortgages at,


let's say a public servant in a grade 3/4 job who will not see a higher grade until they retire or have their mortgage paid off will be given different advice than someone in a grade 3 job now who can see themselves in higher grades by the time they retire or have there mortgage paid off,



The same goes for a private-sector worker on let's say an average industrial wage (which Most workers are on the average industrial wage)

with little or no employer pension Contribution, where they have to contribute most to have the same pension as let's say a grade 4 public servant which should be their aim at retirement,it may make more since to go for a longer fixed term,

Again someone on an average industrial wage where the employer contributes more for a pension close to a grade3/4 public servant pension may go for a shorter term,

Again someone on higher wages and good conditions in the private sector may go for a shorter fixed mortgage,or one they can pay off in a shorter time frame,

If we are having a discussion about long fixed-term Mortgages and Making recommendations we have to know more about who we are advising,
This is a fair point. And pensions are moot in this regard as there is an enormous gap between the remaining high end public sector pensionable roles, "hybrid" pensions in better companies, matched contributions in many, and the many, many companies who offer a very basic pension but contribute SFA to it (as they are permitted to do since PRSAs became a compulsory offering). So discussing pensions means very different things with regard to mortgage terms as someone on a traditional public sector pension gains far less than someone contributing to a zero-employer contribution pension (or self employed - though to be honest, in most cases the odds of such a person getting a mortgage is still quite slim).
 
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