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To Fix or Not to Fix? Now that is a Dilemma!

06/09/2018

The Irish economy has, to all intents and purposes, recovered. Unemployment in July 2018 was down to 5.1%. The housing market sees demand far outstripping supply. The banking system appears to be working once again, with banks competing to offer cheaper and cheaper mortgage rates to customers.

In June 2018, the ECB announced that their inflation outlook for the years 2018 to 2020 was 1.7% per annum, below their 2% target. This means that, in the short-term at least, there is little chance of their base interest rate increasing. Indeed, the ECB suggested that interest rates would remain at their current levels until at least the summer of 2019.

What are your options?

There are essentially two interest rate options to consider; variable rates, where the rate you pay can be increased or decreased by the bank, typically based on the cost of funds to them or; fixed rates, where the rate is locked in for a specified number of years.

Many Irish lenders also offer a hybrid called a split-rate mortgage. Borrowers apply for portion of their mortgage to be at a fixed rate & the balance will be on a variable rate. This option may suit you if you would like to be able to make occasional lump sum repayments but retain an element of the security provided by a fixed rate mortgage.

So, should we fix the interest rate on our mortgage? 

The answer depends on your own personal situation and priorities. Some borrowers, particularly first time buyers or those will low levels of disposable income, need the predictability of fixed monthly repayments for, say, the next five years. For others, whose circumstances may change in the short term, or who may seek to move house sooner, a variable rate is more appropriate. Likewise, if you want to be able to make lump sum payments (say, bonus payments), a variable rate may be more suitable for you, as the bank will not impose penalties for early redemption or lump sum payments. 

As a rule, the tighter your budget, the more suited the fixed rate option is to you. Given your mortgage is most likely your biggest monthly outgoing, this will give you some certainty. With rates possibly increasing next year from their historic lows, a 5-year fixed rate may cover a good portion of the anticipated upward interest-rate cycle. 

At 90% loan to value, variable interest rates currently range from 3.15% to 4.5%; as 5-year fixed rates, for the same cohort of borrowers, are available from 3%, there is no built-in premium for fixing interest rates just now, which is good news for borrowers seeking fixed rates.

In summary;

Mortgage Type	Advantages	Disadvantages
Variable Rate	• Flexibility – no penalty for paying off mortgage early • Benefit from falling interest rates	• Interest rate increases have an immediate impact and could result in significantly higher repayments
Fixed Rate	• Certainty – knowing your monthly cost for the entire period your rate is fixed • Protection from rate increases during the fixed term	• You don’t benefit from interest rate reductions during the term • You may be penalised if you pay down or clear your mortgage during the fixed period

What happens when we complete our fixed rate term? 

Mortgages are long term products that can last for up to 35 years, so you need to know where you stand once the fixed period has been completed. Lenders have different ways to transition borrowers who have completed their fixed-interest term, so before fixing you should find out what suite of products will be available to you at the end of the fixed term.

Knowing the rates currently available from your lender may influence your decision-making but your situation may be very different in, say, 5 years’ time. You may not be able to move lender at that stage if your own circumstances have changed, such as additions to the family and a parent giving up their employment. Lenders criteria can change over time also. 

Hopefully at the end of the fixed term, you not only owe less to the bank, but the value of your property has increased also. Did you know that some lenders would not currently allow you to move to a lower loan to value bracket (and therefore a lower interest rate) in the future? Some lenders still discriminate against existing customers in favour of new ones.

Next step for borrowers 

There’s no substitute for impartial advice from an expert. After all, you are considering a seriously important decision with your most significant financial commitment.

Our colleagues at Irish Mortgage Corporation are very well placed to provide you with full information on fixing rates and your post-fix options from Irish residential mortgage lenders.

For further information on fixing or any other aspect of your mortgage please contact us on 01 669 1040 or by email to info@moneycoach.ie 

A home to come home to….

27/08/2018

Mortgages

For the thousands of people thinking about or preparing to return to Ireland after a time abroad, there are many financial considerations. The purchasing of a home is often a priority. Given the complexity of arranging finance in a jurisdiction where you have not been earning and have no established credit history, specialised advice and guidance can be invaluable.

With the introduction of ‘Non-Resident’ mortgages, as well as home loan financing becoming available in currencies other than Euro, the market in Ireland, whilst still quite limited, does provide options.

If the property is ultimately a home you intend returning to, it is possible to borrow up to 65% of the purchase price with a ‘Non- Resident’ home loan, Interest rates on offer are from 2.95% (APRC 3.0%) and terms up to 25 years are available.

There is also a ‘Buy to let’ option available to the Non-Resident market. The lender can factor potential rental income into their underwriting decision. Both Capital & Interest or Interest-Only are available.

Perhaps you already have an investment property that you want to refinance and covert to a private home.

As one of Irelands leading Mortgage brokers, Irish Mortgage Corporation specialise in helping expatriate clients secure funding for property purchases or refinancing here in Ireland.

Pension

You’ve being contributing to a Pension, perhaps several, during your working years both at home & abroad, what happens to these pensions now? Returning emigrants should be aware of the conditions governing any possibility to transfer or access pension savings established in a jurisdiction outside of Ireland.

If you’ve been in the UK, potentially there are options to take control and transfer or consolidate your pensions outside of the UK in a tax efficient manner.

Perhaps you hold a ‘Locked-in Account’ in Canada or a Superannuation in Australia? Can/Should you access these now? What is the most suitable pension structure now that you are back in Ireland?

Savings & Investments

You’ve worked hard and built up significant savings. Do you leave it where it is and perhaps leave yourself vulnerable to currency fluctuations in the future? Does the current exchange rate warrant a conversion to Euro at this time? Can you achieve similar, or indeed better returns here in Ireland?

At MoneyCoach, we will complete a full review of all your pensions and savings and advise the best approach now that you’re back in Ireland or thinking of returning at some stage in the future.

Workplace Benefits

08/08/2018

After almost a decade of uncertainty in the economy, the country has reached almost full employment. According to the Central Bank, an additional 89,000 jobs will be created over the next two years bringing total employment to a massive 2.3 million. While full employment can bring large gains to the economy it also creates significant challenges for employers.

With companies trying to grow their business and needing additional staff to achieve their objectives, it has become increasingly difficult with almost full employment to attract or retain staff. To help address this problem employers look at creative solutions such as work/life balance programmes, wellness programmes with annual health checks or worksite gyms and healthy eating options, all to differentiate themselves from their competitors

The question now facing employers is “what else”? What additional staff benefit can be implemented that’s meaningful for employees and easy for employers to implement and manage.

Let’s look at some more figures for a minute to help understand the nature of the current workforce. 33% of the population are under 25 years of age, with almost 50% of the population under 34, as such Ireland has one of the youngest workforces in Europe. It’s no wonder that its’ virtually impossible to get employees excited about the fantastic pension benefits employers provide when the average employee waits almost 40 years to enjoy their retirement.

All staff are financially active, we also know that a key considerations is how best to use their “hard earned” cash. How to plan a future that gives them and their families as much financial freedom and security as possible.

Helping staff address their immediate financial concerns is a very real benefit that makes sense for both employers and employees alike.

If we take mortgages as an example: Many of todays employees will be trying to secure a mortgage to buy their first home. Yet, like many of us they too will find the whole mortgage application process time consuming, confusing and difficult to navigate. Providing staff with access to an impartial financial advisor who is expert in the mortgage market has the following benefits: –

Meet to provide mortgage advice in the workplace online or anywhere which is convenient for the employee
Clearly explain the documentation needed by all lenders to access an application
Go through the many rates on offer whether fixed or variable
Advise on special offers from lenders such as “cash-back” or “free legal fees”
Determine the likely mortgage amount available from lenders
Most importantly, keep the employee informed at each stage of the process

Impartial financial advisors can also help employees with their overall financial needs such as; family protection, serious illness assurance, saving to provide third level education for children and investments. The nature of the advice to be offered is determined by you the employer.

Assisting employees by providing access to financial planning is a fantastic benefit and one that employees will truly appreciate.

For more information on our employer services for employees please contact Michael Lacey on 01 6691014.

The Case for Pension Mortgages

25/07/2018

After a decidedly rocky patch, the Irish love affair with property has been rekindled with lending more available and demand outstripping supply in Dublin and other major urban centres. New and niche lenders have entered the market, encouraging existing lenders to improve their interest rates and offerings to remain competitive.

Thankfully, strict lending rules imposed by the Central Bank should limit the potential for a lending bubble. According to the Central Bank, more than 50% of house purchases are currently being made by cash buyers. This statistic and the low level of new housing stock currently being developed is combining to drive prices upwards. Current low interest rates and generous rental yields are making it more attractive for people, whose savings might otherwise remain on deposit, to purchase investment properties.Some of these “cash buyers” are individuals using their pension funds for the purpose. Within your pension the rental income and the capital appreciation of the property accumulate tax free.

There is now a mortgage facility available to allow pension funds leverage their value to buy Irish residential investment property that otherwise would be unaffordable. Not all pensions will be able to access this product. Typically, a small self-administered scheme, or SSAS, must be set up, and the funds transferred into it, before any application can be made to the lender. The process of setting up the appropriate pension scheme for this purpose can take up to 2 months, so it is important to prepare accordingly.

Your pension may borrow up to 50% of the value of the property. When other ancillary costs are factored in, the fund value should really be more than 60% of the purchase price and if the mortgage is on a capital and interest basis, there requirement could be even higher. All charges associated with the borrowing will come out of the fund.

It is important to remember that strict Revenue rules exist when purchasing property through your pension. The purchase and subsequent rental of the property must be on an “arms-length” basis, in other words, you may not purchase the property from, sell or rent to anyone connected to you or your family. Unlike investment funds, liquidity is limited by your/your funds ability to find a ready market for the property at a time of your choosing. If direct property makes up a significant proportion of your fund, you may have difficulty in accessing your tax-free lump sum at retirement.

Proper pensions advice is required to ensure that leveraging your pension for the purchase of investment property is suitable for your circumstances and future needs. Poor or cheap advice in this area may prove to be a very expensive mistake that you will carry with you into your retirement and perhaps beyond.

MoneyCoach’s pension experts are available on 1890 4280343