What 70,000 Irish mortgage holders should do with their fixed-rates this year

I believe interest rates will fall by 1% to 1.5%. It was interesting to note in the week that AIB and Bank of Ireland announced bumper profits that the chief executives of both banks suggested that total ECB rate cuts of 1.25% were built into their projections for the rest of this year. 

The pending reductions will pose questions for both new and existing mortgage holders. 

There are 715,000 owner-occupied mortgage holders in the Republic, including 107,000 variable-rate customers, 179,000 tracker-rate customers, as well as the 429,000 fixed-rate customers who account for 60% of all mortgage borrowers. 

Tracker mortgage holders will see the benefits in their monthly repayments a month after the ECB announces each successive rate cut. However, variable-rate and fixed-rate customers will be beholden to their individual banks as to the size of the rate reduction, if any, they will get. 

It was interesting that when rates increased that banks, to be fair, only passed on an average of 1.75% to 2% in terms of higher rates. But that meant that the saver lost out at the expense of the mortgage holder. That, as they say, is a debate for another day.

While variable rate customers only account for 15% of the market, they experienced various outcomes from their banks: AIB increased variable rates by 1%, Bank of Ireland increased its variable rates by 0.25%, and PTSB increased by 0.4%. 

Avant Money, a rival bank lender to the three dominant lenders, has still not introduced a variable rate offering for its customers.

Ranging between 3.65% and 4.3%, green interest rates are available from all banks, except for Avant, and vary depending on the loan-to-value of the property and on the length of the fixed-term loan. 

There are 70,000 fixed-rate customers who will have three choices when their fixed rate expires this year.

They can either go variable, go fixed again, or switch lender. 

In my opinion, there is compelling case to take the variable rate route and switch later when the full extent of the rate reductions has been assessed over time.  

As noted, banks have passed on about half of the ECB rate increases since July 2022. 

And following the same logic for rate reductions, fixed-rates should fall by 0.6%.

There is no charge for customers to switch from a variable-rate to a fixed-rate loan, so there are savings to be made. 

Taking a variable rate, which in a lot of cases is currently cheaper than a fixed-rate, and then switching at a later stage, will be a better choice for existing customers.

While I am not an advocate for cashback options, borrowers should note that the 2% or 3% cashback mortgage loan options are available, including variable-rate offerings and not just fixed-rates products.

Leading mortgage broker and debt adviser, Michael Dowling QFA is managing director at Dowling Financial