The decision making on how to choose the best mortgage provider can be tough, especially for first-time buyers. With so many banks present on the market, it’s recommended to take time and compare all the pros and cons before making the final decision. What can change plans a bit nowadays is the possibility of mortgage cashback offers. The introduction of cash-back offers on the Irish mortgage market in 2015 is one of the newest features which can be beneficial to consider for first-time buyers.
What is a mortgage cash back offer?
This is where the chosen lender will give the customer a particular percentage (typically 2%) of the mortgage amount once the mortgage completes with a further 1% perhaps available on the 5th anniversary of the mortgage completing.
These offers tend to be available to all home-loan borrower types. One of the banks even makes them available to buy-to-let mortgage customers.
In general, there are three banks that offer cash back deals in Ireland: Bank of Ireland (BOI), PTSB and EBS. For many people looking to get a mortgage, these deals can be very attractive as after you have saved the deposit, paid the stamp duty and the legal fees, and now have to turn a new house into a home, any extra funds are obviously a welcome addition.
Let’s have a look at the three main mortgage cash back providers, and also let’s compare them with the rest of the market. You might be surprised by our findings below.
In this article, we will cover the following questions:
1. What are the 3 cash back deals banks are offering at the moment?
2. What are the differences between them?
3. How do these deals compare to other mortgage products on the market?
4. What, if any, are the downsides?
5. What risks might there be in the future which you should incorporate into your decision making today?
Are you the first time buyer? Read our Top Tips which help to ease the process of purchasing a new home and calculate your costs with our Mortgage Calculator. Read our Guide for first time buyers.
The cash back deals in brief
Bank of Ireland
BOI will give you 3% of Cash Back. 2% will be paid after the mortgage draws down, and a further 1% (assuming you are a BOI current account customer) after year 5. This offer is also available to buy-to-let customers.
PTSB offers 2% Cash Back. 2% will be paid after the mortgage draws down, and will also provide a 2% discount (if paying your mortgage from a PTSB Explore current account) on your mortgage repayments each month until 31 December 2027.
You will be given a 3% Cash Back in EBS. 2% will be paid after the mortgage draws down, and a further 1% will be provided after year 5.
For the purposes of comparison, let’s analyse a 5-year fixed mortgage over a 30-year term with the rest of the market. We’ll assume a first-time buyer and that the property is a new build. We are picking a 5-year fixed because the 3% cashback on offer from EBS and BOI requires you maintain your mortgage with them for at least this 5 year period.
Purchase Price: €300,000
Term: 30 Years
Fixed Term: 5 Years
Just to mention, the rates can differ slightly based on loan to value and the actual size of the mortgage.
In this example, PTSB has a rate of 3%, EBS has a rate of 2.9%, and BOI, with their Green Mortgage Discount, has a rate of 2.8%.
3% Cash Back from EBS & BOI would be €8,100 in this case.
2% Cash Back from PTSB would be €5,400 in total.
The monthly repayments are:
BOI: €1,109 (fixed for 5 years)
EBS: €1,124 (fixed for 5 years)
PTSB: €1,138 (fixed for 5 years, or €1,152 pm after the 2% monthly discount)
Based on the above example, BOI is the best option. Also, it’s worth noting that PTSB also has “Existing Customer Rates” that are higher than their new business rates. Whereas both BOI & EBS have the same rates for new and existing customers. This means when you come off the 5-year fixed with PTSB, you will likely be paying more as PTSB currently charge their existing customers more than their new business customers.
When comparing BOI & EBS, they both give the same cash back figure. However, since BOI has a lower rate of €15 per month, equating to saving over EBS over the 5 year fixed term of €900.
Is BOI the best option compared to the whole market?
Surprisingly, the best rate available in the whole market for the example above is from AIB, at 2.5% despite AIB doesn’t offer any cash back. so let’s run the numbers:
AIB: €1,067 fixed for 5 years.
BOI: €1,109 fixed for 5 years.
Therefore, AIB is €42 cheaper per month, and €2,520 cheaper in total over the 5 years fixed period.
When we include BOI’s 3% cash back offer of €8,100, overall BOI winds up cheaper by €5,580 over the 5 years.
For most people in most circumstances, the best cash back deal will beat the best rate over a fixed period. But are there any downsides? This question brings us to APRC, which is a related term that you might be interested in when reviewing mortgage cash back offers.
Calculate your Annual Percentage Rate of Charge (APRC)
APRC stands for Annual Percentage Rate of Charge. A lender is always required to quote the APRC when advertising a loan or borrowing rate. It is a standard interest rate calculation designed to reflect the total amount of interest that will be paid over the entire period of the loan.
In our example, we know that the BOI deal is the best when compared over a 5-year period. However, does it have the lowest APRC over the lifetime of the mortgage? No, it doesn’t. That honour also goes to AIB in this case.
AIB: 3.0% APRC
BOI: 3.7% APRC
What does the above mean in practice? In the short term, when you roll off your 5-year fixed period, you will, at current market rates, roll on to AIB’s standard variable rate of 3.15% or BOI’s standard variable rate of 4.5%. These numbers make a big difference!
Can I combine multiple products to get the best deal?
Most likely, you are wondering whether you can pick another product in the BOI suite of products, and you don’t have to stay on their standard variable? The answer is yes, but you don’t get to see what BOI are willing to offer existing customers over the next 5 years.
What we can say with a high degree of confidence is that it’s unlikely that BOI will be the cheapest for the remaining 25 years of the term. There are 7 lenders currently in the Irish home loans market so a one in 7 chance is 14%.
Risks connected to moving the mortgage
There are also other options when it comes to finding various solutions. Are you considering the possibility of moving your mortgage after the five years to get the best rate at that point? Yes, you can, but there are a few risks which you might keep in mind. These are broadly divided into two categories:
A few examples of macro risks can be that the property market has collapsed, or the economy is in poor condition, ECB rates are much higher etc.
For example, the impact of any one of these events could be a sharp reduction in the value of your home resulting in a much higher Loan to Value (LTV) rate then applying. At present, it is not possible to switch a mortgage to another provider if the LTV exceeds 90%.
Micro risks are directly connected to your own financial conditions and personal/family status. For example, your family is larger and costs too, a change in your employment situation, a change in your health, etc.
For instance, a joint mortgage application could have applied for the first mortgage. Kids have arrived and one of the mortgagees is to stay at home. With just one income then, these applicants may not qualify for a new mortgage even where it is a straight refinance of their existing mortgage.
Given that, anyone moving their mortgage will need to be fully underwritten by a bank at the time of their proposed mortgage move, any of the above changes could negatively impact a mortgage mover proposal. In short, you could be stuck with a lender because no other lender is willing to take your business at that point in time.
In our experience, most people opt to take the risk, and it surprisingly works out for most of them. However, consider all the options before making any decision. It’s worth appraising these risks at the front end rather than in 5 years’ time when your options are limited. It is also a good opportunity, before you get a mortgage, to see how you can minimise these risks. For example, income protection (PHI) policy and a specific serious illness policy would go a long way to mitigate these risks for you and your family.
We’d finish up here by saying that mortgage cashback offers are a welcome addition to the Irish mortgage market as they provide more choice to the consumer. However, as we have outlined above, much consideration needs to be given to the short-term benefits they clearly provide compared with the potential long term cost.
If you are thinking about taking a mortgage cashback deal, switching your mortgage provider or you’d like to ask anything about your current or future investing intentions, our expert team here in Irish Mortgage Corporation would be delighted to help you to answer your questions and give you the best advice.
Contact us via phone on 1850 444 474 or simply fulfil the Get In Touch form below and we will come back to you.