Key Post Serious mortgage rate cut at last: Ulster to launch 4 Year Fixed Mortgage Rate of 2.6% !!!

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On July 25 Ulster Bank will launch a four-year fixed-rate mortgage that charges 2.6 per cent, about ten percentage points lower than its cheapest fixed-rate mortgage product, which stands at 2.9 per cent. More here.

Good to see rates moving in the right direction.
 
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Gordon Gekko

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I just logged in to post this...a great sign.

I'm with Ulster Bank and have a jaundiced view of fixed rate mortgages...however I'm tempted by this.

But perhaps this is a lead indicator of something more...e.g. a shift to the European norm of 2%ish?
 

Brendan Burgess

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Wow!

Now that upsets my Best Buys Table

If you have a choice of 3.1% variable and 2.6% fixed, it's not a clear decision.

I do expect that variable rates will fall, but obviously I can't be sure. And ECB rates could rise before Irish banks reduce their rates.

I can't read the complete Times article

Loans over €300,000
Loan to Income: 3.5 times

What is the LTV?


Brendan
 
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RedOnion

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<80% LTV, for loan amounts over 300k.

It's a no brainer, as even if variable rates fall, the breakage cost for exiting a fixed rate early is based on funding rates, not customer rates.

It'll be interesting to see if they keep the 1500 legal fees with this product or strip it back to just a straight interest rate with no gimmicks. I need to analyse it properly but I think net cost over 4 years works out very close to Boi 3 year fixed with 2% cash back.
 
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Gordon Gekko

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I'm on 3.1%, and I obviously can't be sure that rates won't hit 2%.

However, the way I look it, for every day I pay 2.6% vs 3.1%, I'd need a day with the variable rate sub 2.1% to be losing out.
 

Brendan Burgess

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Hi Gordon

Let's say you fix now for 4 years €100k (for ease of calculations) at 2.6%

You will pay €2,600 a year for 4 years.

Let's say ECB rates stay the same for the next year, but after a year, the variable rate in Ireland drops to 2.1% for your LTV.
By fixing you will pay an extra €500 this year , but save €500 for the next three years. So you would be €1,000 worse off if you fix now.

However that is a huge set of assumptions - that variable rates will fall to 2.1% and that the ECB rate won't rise over the next 4 years.

I do think that variable rates will fall. I am not sure if they will fall to 2.1%, even for the low LTV rates. And although there is no sign of an ECB rate increase, I would imagine that it will be higher in two years.

So fixing at 2.6% can't be far wrong. Staying on a variable rate could be far wrong if Irish lenders don't reduce their rates and then increase them in line with ECB rate increases.

The only way I think you might lose out is if the Ulster Bank move results in AIB offering a fixed rate of 2.5% for ten years.

So maybe the thing to do is to apply for the Ulster Bank rate but not sign the paperwork until you see how the market reacts.

Edit: if you can afford 2.6% but could not afford a variable rate increase, you should take advantage of this.

Brendan
 
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Gordon Gekko

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Hi Brendan,

That sounds sensible alright.

The beauty with UB is that I'm with them already, so I can save 0.5% pretty easily.

I am curious, however, regarding the rate that one reverts to post the fixed rate period. Something in the back of my mind suggests that with UB it's their actual SVR rate of circa 4%. I know a switch should be possible then, but maybe it wouldn't.

Thanks.

Gordon
 

Brendan Burgess

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Hi Gordon

Ulster Bank allows all existing customers to avail of whatever is on offer to new customers. So you will be able to get their best variable rate for your LTV and size of the mortgage.

Brendan
 

Gordon Gekko

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Thanks Brendan. I will reflect on it between now and the formal launch of the product, but subject to nothing more attractive being launched in the interim, I think I'll be breaking the habit of a lifetime and fixing a mortgage.

Gordon
 

RedOnion

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Let's say ECB rates stay the same for the next year, but after a year, the variable rate in Ireland drops to 2.1% for your LTV.
By fixing you will pay an extra €500 this year , but save €500 for the next three years. So you would be €1,000 worse off if you fix now.
But, if Market rates don't change, the breakage costs to exit a fixed rate will be minimal.
The only way you can really lose out by fixing is if Irish banks drop their variable rates, and money market rates fall further.


The only way I think you might lose out is if the Ulster Bank move results in AIB offering a fixed rate of 2.5% for ten years.
That's an interesting point. There are only a small number of players dictating the market - it's quiet obvious that they've avoided taking each other head-on with variable rate reductions as it quickly becomes a race to the bottom for them. However, they're all desperate for market share now as their performing books are being repaid quicker than expected. The one thing that's certain is that the other banks will react to this move, it' just a question of how.

It's interesting that UB are going with a new term for this, so don't be surprised to see the others do similar to avoid direct comparisons being made. For example a 4 year fixed term at 3.1% with 2% cash back up front works out at almost exactly the same cost as 2.6% fixed with 1500 cash back (assuming a 300k loan).
 

Boyd

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I wonder why they chose 300K as the minimum? I owe less than that so cant avail of this.
 

Brendan Burgess

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Apparently Ulster Bank is saying that this deal is available for three months only.

That is a bit odd. Presumably fixed rate products, and indeed variable rate products, are reviewed all the time. If the long-term cost of funds rises, then UB would increase this rate?

Or maybe the rate, despite being the lowest, is still so much out of line with rates in other European countries, that they know that they won't have to increase the rate within 3 months.

But for people who want to wait to see if other lenders react, it would be nice to know that this rate is available for 3 months.

Brendan
 

RedOnion

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Re 3 month time limit:
  • The same as shop sales - to rush people into making a decision quickly, and
  • Speculating here - To beef up their new mortgages before year end so they're not in breech of CBI exemption limits (only available for <80% LTV)
 

Brendan Burgess

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Speculating here - To beef up their new mortgages before year end so they're not in breech of CBI exemption limits (only available for <80% LTV)
OK, so they have given out too many exemptions are if they don't write a lot of new business, they could exceed the limits.

Possibly, but seems sort of unlikely in July, unless they have been giving out lots of approvals with exemptions in the first 6 months and more of their customers than anticipated drew down those offers.

Brendan
 
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RedOnion

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OK, so they have given out too many exemptions are if they don't write a lot of new business, they could exceed the limits.

Possibly, but seems sort of unlikely in July, unless they have been giving out lots of approvals with exemptions in the first 6 months and more of their customers than anticipated drew down those offers.

Brendan
July is exactly the month you'd realise you've a problem, but still have s chance to fix it. This deal will take them to the end of October...
Again, speculating based on the fact they've shut off exemptions. It's a very difficult behaviour to model / predict, so I'm not surprised that banks are running into problems with exemptions. Borrowers tend to get approval in principle from more than 1 bank, and you never really know which approvals are going to lead to drawdown. Get it wrong, and it's just the exemption cases.
 

renter45

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*4 Year Fixed - available to customers borrowing €300,000 or more where the LTV is 80% or less and Loan to Income as assessed for the application is no more than 3.5 times.

So they've popped in the max 3.5 times loan to income. Very selective criteria.
 
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