Thank Bank of Scotland for low Irish mortgage rates

Mortgage rates are falling to their lowest-ever levels and for this Irish homeowners have to thank the Bank of Scotland

Mortgage rates are falling to their lowest-ever levels and for this Irish homeowners have to thank the Bank of Scotland. The latest round of rate reductions sparked by Irish Permanent last week will mean savings of around £16 a month for a £50,000 mortgage and correspondingly more for larger mortgages. Within weeks, borrowers can expect that all lenders will have followed with their own rate reductions. Most of those on variable rate loans should see their repayments drop in time for their October repayment.

But for new borrowers, or those thinking of remortgaging, one of the main problems is deciding whether to opt for these lower variable rates or for the higher fixed rates which have been increasingly popular over recent months.

For the first time in recent years, fixed rates are now higher than the variable rate. That is of course the way it should be. After all, taking out a fixed rate is effectively taking out insurance and when rates are set to rise this insurance is more expensive than when most believe they are going to fall.

Already fixed rates have been rising. The very cheapest disappeared from the market several months ago but in many instances they may still offer very good value.

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Up until last week, the majority of buyers were opting for two-year to four-year fixed rates, believing that these would be best value over the longer term. But that decision will now be more difficult as variable rates fall. It is still not clear what the best rate in the market will be, as the EBS has yet to cut. It is also quite possible that this latest round of reductions will not be the last. All the domestic lenders are still significantly above Bank of Scotland's 3.99 per cent and competition may drive them down further. Irish Permanent's chief executive has already said the bank is on its way to the EU average of 4.5 per cent. It seems clear that there is room for further cuts should the market demand With rates set to fall again Brian Moloney, of Moloney Mortgages in Donnybrook, says it is now best to hold fire: "You can always fix at a day's notice, the only problem is that you may miss out on any introductory offers for new customers." However, for anyone with very large borrowings, or who really needs to know what their monthly commitment is, there are still some reasonable deals in the two-year and four-year area. One option is to take out a very low one-year fixed rate which is available at well under 4 per cent. This will also allow access to the lower variable rates in a year's time. But borrowers must remember that there are no guarantees with variable loans. Opinion in the money markets is now divided between those who believe that the European Central Bank will raise rates later this year and those that think it will hold off until next year. However, there are very few who believe that they will not have risen in 12 months time. This could wipe out the benefits of this round of rate reductions.

However, he says it is very important to get professional advice, not only to get the best rate but also to get a lender with a good record in low rates. So far, Bank of Scotland is only putting its toe in the water. Mortgages are only available for principal private residences of the family home. So no finance is available for either investors or for commercial loans. It is also only offering variable rate loans.

However, as Brian Moloney says, the advantage is that Bank of Scotland will allow homeowners to release up to £50,000 of equity in their homes with no questions asked. Someone with a £200,000 home and a mortgage of £50,000 can remortgage to a £100,000 loan and the bank will not ask what the additional money is for. This could be very useful to set up a business or reschedule other debts and is not something Irish lenders usually allow on a family home.