Different property price, same mortgage repayments

Today's home buyers may continue to benefit from lower property prices than their boom-time counterparts, despite recent gains but, as research from the Central Bank published this week shows, they may nonetheless be repaying similar amounts to the bank every month.

Despite paying 30-50 per cent more for their properties, holders of boom-time tracker mortgages are still repaying less each month than those on current fixed and standard variable rate (SVR) mortgages, thanks to low interest rates.

According to the research, tracker mortgage holders have the lowest median monthly repayment across a survey of some 310,000 mortgages, at €756, with interest on their loans between just 0.5-2 per cent.

Those on standard variable rate and fixed rates, who are paying interest at a rate of between 3.5 and 5 per cent on their loans, pay slightly higher medians: €775 and €834 a month.

But the differential exists only up to a crunch point – properties for which €330,000 or less was paid. Up to this threshold, tracker borrowers fare better than other options: above it however, the Central Bank found “no difference”.

So, depending on the value of their home, some more recent homebuyers may face monthly repayments that are no different to those who may have paid 30 per cent more for their home. Some comfort then for those who may have overpaid during the boom years but got a tracker mortgage.

The research also shines interesting light on the psychology of borrowers.

Despite ongoing calls for variable rates to be reduced, the figures show a “low propensity” for homeowners to actually switch. Just 19 per cent of standard variable customers switch.

The reason could be the lack of a decent alternative. But, given the recent reductions in rates for fixed-term mortgages, you would expect any future study to show an increase in willingness by borrowers to move.