Q&A: what’s happening in the mortgage market?

I’m currently paying through the nose for my mortgage, and heard there was some news an interest rate cut?

Yes. Ulster Bank has announced a new fixed rate of 2.3 per cent for two years on Friday.

Is that good?

It’s the best rate available on the market at the moment.

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How does it compare to the same offering at other banks though?

The Competition and Consumer Protection Commission says that with a 20 per cent deposit, the rates for two-year fixed mortgages are 3.2 per cent at AIB; 3 per cent at Bank of Ireland and EBS; 3.2 per cent at Haven Mortgages; and 2.8 per cent at KBC.

So does this mean that the other banks will follow suit and lower their rates?

We don’t know for sure, but these things normally tend to have a knock-on effect. Fianna Fail’s finance spokesman Michael McGrath said that if consumers are prepared to shop around for the best deal, banks will have no option but to cut their rates.

That being said, an analyst with Investec said he was not expecting to see knee-jerk price reactions from the other banks. AIB might be under the most pressure to act.

How do we compare to other countries?

Even with this move, interest rates charged on mortgages here are the highest in the euro zone. According to the latest figures from the Central Bank of Ireland, the average interest rate across the euro area stands at 1.8 per cent, while we are at 3.15 per cent.

McGrath said banks here have been “ripping off” mortgage holders and can afford to cut rates closer to European norms, and still make healthy profits.

Tell me more about this Ulster Bank offering?

The new rate is available across all loan-to-value (LTV) bands and is in addition to its four-year fixed rate of 2.6 per cent. The four-year rate is also now available across all LTV bands.

My sister is struggling with a €300,000 mortgage over 20 years on a standard variable rate of 4.3 per cent. Would it be worth her while to switch?

If she were to switch to the new two-year fixed rate of 2.3 per cent, she would save €305.07 per month or €3,660.84 per year.

What if she wants certainty on her repayments for longer?

Ulster Bank is also reducing its seven-year fixed rates, which now range from 2.99 to 3.29 per cent. They were previously 3.29 to 3.49 per cent.

What else is up for grabs?

Well the bank is also offering a €1,500 contribution to legal fees; €25,000 life insurance cover for first time buyers in the first year of the mortgage; half off home insurance for first time buyers in the first year of the mortgage; and a 10 per cent annual overpayment allowance on fixed-rate products.

Should I be worried about fixing for two years?

Brendan Burgess from askaboutmoney.com says there is almost no downside in taking out a fixed rate for two years. If rates fall further, and you want to break out of this rate, you will face a very small penalty for doing so.

What goodies do the other banks have to offer?

PTSB currently offer customers 2 per cent cash back to the value of their mortgage. It also gives customers 2 per cent cash back on their mortgage repayments every month until December 31st, 2027.

EBS currently offer four months free home insurance and 2 per cent back in cash to all new mortgage customers.

What about Bank of Ireland?

New mortgage customers with Bank of Ireland are currently offered cash back to the value of 2 per cent of their mortgage. If a customer has a current account with Bank of Ireland when they apply, they can qualify for an extra 1 per cent of their mortgage back in cash after five years.