Credit: Extra.ie

Mortgage holders appear set to reap the benefits of a new interest rate price war, with the moves yesterday being hailed as ‘great news’ for customers.

Credit-card company Avant entered the home loan business with a rate of just 1.95%, forcing Ireland’s largest bank AIB to immediately respond with a five-year fixed rate of 2.25%. Other banks are expected to roll out new deals in the coming weeks.

David Hall of the Irish Mortgage Holders Organisation urged people to threaten to switch to Avant to see what their lender can offer.

Describing the cut-price rates as ‘great news’, he added: ‘It’ll make people shop around, it’ll rattle the market and shake them all up.

‘Torture your existing provider and try and get a lower rate. Use this to negotiate.’ The Avant rate means customers with a €250,000 mortgage will pay €1,258 a month, almost €300 less than €1,514 on a 4% variable rate.

However, Avant’s rate is reserved for borrowers with a 40% deposit or equity in their home. The bank also does not have any ‘cash-back’ deal to cover the €1,500 legal expenses involved in switching.

Avant Money’s Ireland boss Chris Paul said yesterday: ‘It is the lowest rate on the market and the lowest for quite some time, probably the first time in ten years anybody has had a rate below 2%.’

The bank is not ruling out people who are on the Temporary Wage Subsidy Scheme and Mr Paul added: ‘We assess every application on an individual basis.’

‘We’re looking to make a big splash in the market, it doesn’t make sense for us then to be cherry-picking and offering mortgages to a handful of customers. Quite the opposite, anybody can apply to us, we’ll consider their application and where we can we’ll gladly give someone a mortgage.’

And financial expert Brendan Burgess, of askaboutmomney.com, said: ‘Avant has by far the lowest rate for people borrowing less than 60% of their loan to value. They have the lowest rates for those who want to fix for seven years.

‘Some people argue that a difference of only 0.3% between Avant and the next cheapest is not that significant but as it’s a saving every year, then it’s very significant.

‘A rate of 1.95% over seven years is a very low rate and borrowers should give serious consideration to it.

‘And it must be remembered that there are probably around 100,000 customers between Bank of Ireland, Ulster Bank and Permanent TSB who are paying rates of 4% and more.

‘With the increases in the value of properties over the last few years, many of these have substantial equity in their home and could halve their mortgage rate by switching.

‘A Bank of Ireland customer with a mortgage of €200,000 on a property worth €400,000, could save about €5,000 a year by switching to Avant.

‘Or put it another way, the savings would pay the legal costs within two months of switching.’ Daragh Cassidy, of switching site bonkers.ie, said: ‘Avant Money also doesn’t offer cash-back or reduced home insurance or any other types of offers.

‘Where Avant Money offers excellent value is for switchers who bought their property around five to ten years ago and who should have built up some substantial equity in their home and who can actually avail of the sub 2% rate.

‘However, here switchers will need to be prepared to stump up the €1,000 to €1,500 mortgage switching costs upfront.’