The Association of Irish Mortgage Advisors (AIMA) is calling on lenders planning to raise mortgage interest rates to give borrowers who have been approved for a loan eight weeks’ notice to proceed to the drawdown stage, locking in their original rate.
Finance Ireland on Monday became the latest Irish lender to raise rates following the European Central Bank’s (ECB’s) recent policy rate hikes, aimed at cooling red-hot euro zone inflation. The lender initially gave its customers five days to proceed to the drawdown stage before the higher rates kicked in, but later extended this to 10 days.
AIMA has warned that such short drawdown windows could result in “the loss of deposits and house sales falling through”.
The association has warned that some notice periods on new, higher rate offers “are simply too restrictive and will jeopardise mortgage approval and house sales”.
Consequently, “thousands of would-be homeowners could see their purchase agreements fall through in the coming weeks or it could force borrowers to take mortgages at an increased rate with no time to avail of cheaper options elsewhere. This would not be “in the best interest of consumers”, AIMA said in a statement on Thursday.
“Moves by lenders of late to introduce rate increases are expected and understandable,” said Trevor Grant, chair of the association. “But what is not expected are very narrow time frames offered to consumers who are in the throes of the property purchase process and mortgage switching, to avail of the lower rates — which were originally offered.
“This situation could potentially be disastrous for the people affected,” Mr Grant said. “Mortgages invariably take months from first application to closing. However, thousands of people who are well advanced in the process are now being asked to close within a very short time frame that is for most simply not possible. Many applicants will have signed contracts and paid potentially non-refundable deposits to purchase their new home.
“Equally, a number of those approved may not have sufficient time to organise alternative and more appropriately priced mortgages”.
AIMA is asking lenders to commit to a consistent notice period of eight weeks to allow customers who have been approved for a mortgage to proceed to drawdown.
“We now need understanding and consistency from lenders across the board and a lengthier, more practical, notice period for applicants who will be impacted by these rate increases,” Mr Grant said.
“Alternatively, new mortgage applicants should have the option to book a rate, where they pay a fee in advance of their application to secure the current interest rate deal. This could prove to be particularly attractive in the current climate of increasing interest rates”.
Meanwhile, analysis by Daft Mortgages, published earlier this week, revealed that 87 per cent of mortgage holders would save an average of €90 on their monthly repayments by getting ahead of expected rate hikes and switching their mortgage to another provider in 2022. Overall, homeowners could save an average of €8,900 over the next four years by switching and fixing their rates, according to the study.
However, just one per cent of homeowners are likely to do so, according to the study, citing lack of knowledge, the prospect of being charged break fees by their bank and the effort involved in switching mortgages.