Q I bought my home almost three years ago and the three year fixed rate is up soon. The interest rate I was on has risen from 2.4pc to 5.25pc. I’m really worried as this is a massive increase and I’m not sure that I’ll be able to afford it. Is there anything I can do?
The answer here is maybe. It’s maybe because it depends on your own personal circumstances, and I’d need more information to be able to answer for certain. I’d need more information on your property, income and outgoings for example, but assuming they are as required, you could certainly reduce your rate with your existing lender or by switching. The most cost effective rates right now are Green Rates and Loan to Value Rates (LTV) where you are borrowing less than 60pc of the house value.
Green Rates
Lenders offer attractive rates to the owners of homes with a building energy rating of A1 – B3 or more. These so-called green mortgages, have grown rapidly in popularity. They are available to first-time buyers, movers and switchers. These loans are usually on a fixed-rate, and most do not exceed five years. For example, borrowers can currently avail of a four-year fixed-rate green mortgage of 3.65pc, regardless of the loan-to-value ratio (LTV). This would be a massive saving on your projected rate above. Many homeowners are investing large sums in improving their home’s BER, and qualify for a cheaper green mortgage as a result. However, to get a green Rate you will need a BER cert upfront, and this can be difficult to obtain with certain lenders if you are building or doing renovations to bring your house up to the required energy rating. This should not be a problem in your particular case as you are just switching mortgage.
Loan to Value Rates (LTV)
While some of the cheapest mortgages out there are green ones, it is important that borrowers do not assume a green mortgage is the best deal. You may be able to secure a cheaper mortgage elsewhere even if the lender isn’t specifically offering a green home loan. Also, not everyone can afford to buy the kinds of homes that will allow them to get a green mortgage in the first place. Borrowers losing out on the opportunity to get a green mortgage may get almost as good a rate when borrowing less than 60pc of the value of your property as this would normally attract a good rate.
Most first-time buyers want security over their repayments, which is why they tend to favour three to five-year fixed rates. For those happy to fix, it is hard to see any downsides to a green mortgage — unless you want a long-term fix. There are currently no variable-rate green mortgages on the market and fixing may not suit a borrower who plans to sell their home within a few years or anyone who expects to be able to make lump sum, or regular extra payments on their mortgage. While some lenders do have flexibility on their fixed rates, they usually cap over-payments to 10 per cent. Variable rates on the other hand will mean overpayments of any amount penalty free are allowed. Overpaying obviously cuts down on the loan amount outstanding, saving you money, but it also improves your loan-to-value (LTV) ratio, and that may save you even more money.
You need to do the sums to ensure that you are getting the best rate for you. Ask us to help you here.