Thousands of mortgage holders who have their loans with non-bank lenders could be set to be see their mortgage rates leap by as much as 3.5 percentage points later this year.
The increase will come when their current low fixed rates come to an end and they are forced to choose from one of the now higher rates available in the market.
Online mortgage broker, doddl, said because they are reliant on wholesale markets for their funding, some non-bank lenders remain “stuck at the height of the market”.
That means that when borrowers with non-bank lenders roll off their loans, if they need to stick with their current providers they could be facing big hikes.
“As part of their funding mix large retail banks are able to subsidise their mortgage lending costs by using deposit holder funds, on which they offer little return,” said Martina Hennessy of doddl.
“This results in a competitive advantage for bank lenders who have a lower cost of lending and can therefore reduce rates.”
“Non-bank lenders do not hold deposits and as such are reliant on markets to fund lending.”
Ms Hennessy said that those who borrowed with non-bank lenders like Finance Ireland and ICS four or five years ago when they launched were able to avail of low rates of 2.25% for a typical three-year fixed, for example.
But now the same borrowers could be facing rates with their current lenders of 6.7% variable or 5.75% for another three-year term.
She added that some pillar banks have already cut their rates by 1% around the ECB rate reduction in June and introduced new products.
“The current market presents a great opportunity for mortgage holders to make substantial savings, Ms Hennessy said.
“Switching could be a game-changer for many Switcher packages are an added incentive, ranging from €1,500 right up to 2% of your mortgage back in cash.”
According to the latest doddl.ie Mortgage Switching Index there is a €7,200 difference in annual payments between the highest and lowest mortgage rates currently available.
Doddl says homeowners could save as much as €602 per month by securing the lowest rate, based on the average new mortgage drawn down in the last quarter of €309,679 over 25 years.
Article Source – Some mortgage holders with non-bank lenders to face big rate hikes this year – RTE
