Changing mortgage LTV

Golaco

Recently spoke to AIB about recalculating my LTV as we've been paying off mortgage for 5 years and house prices have shifted in our favor meaning LTV has reduced

Current LTV based on market rates etc. is <80% so we'd be looking to move to a more favorable interest rate based on that (We're currently in the >80% band and have been since we purchased)

Their adviser told me that if were to move to the <80% LTV band we'd then remain there for the duration of the mortgage and even if I wanted to make a bulk payment in future to drop us to <50% LTV we'd still remain in the 50%-80% band for the purposes of calculating our interest rate

Seems crazy that LTV can't be continually recalculated to reflect the real world. It's not like it's going to change every week, every few years max. Is this standard practice for all lenders or an AIB quirk? Any advice?

cookie1977

Well I'm with Bank of Ireland and it was recalculated in my favour recently.

coylemj

Golaco wrote: »

Seems crazy that LTV can't be continually recalculated to reflect the real world.

What you're claiming is that in the 'real world', the rapid rise in property prices has the effect of reducing your LTV, therefore the bank's risk is going down every day, therefore you should pay less interest.

And to think that people still blame the banks for the last property crash

Golaco

coylemj wrote: »

What you're claiming is that in the 'real world', the rapid rise in property prices has the effect of reducing your LTV, therefore the bank's risk is going down every day, therefore you should pay less interest.

And to think that people still blame the banks for the last property crash

Not quite but don't let the facts get in your way. Predominantly my repayments but also a rise in the value of the asset has reduced the LTV versus when we took out my mortgage. Seems reasonable to think the bank would reflect that

marketty

Golaco wrote:

a rise in the value of the asset has reduced the LTV versus when we took out my mortgage. Seems reasonable to think the bank would reflect that

But what about when it goes the other way?

We're actually in a somewhat similar situation. Planning to get a valuation soon and might just scrape under the 50% LTV for the best rate. If we end up in the 50-80%LTV and 'locked in' as you describe, I'd plan on just paying down to sub 50% and switch the mortgage to another lender. Definitely a switchers market at the moment with cash back etc.

Golaco

marketty wrote: »

But what about when it goes the other way?

We're actually in a somewhat similar situation. Planning to get a valuation soon and might just scrape under the 50% LTV for the best rate. If we end up in the 50-80%LTV and 'locked in' as you describe, I'd plan on just paying down to sub 50% and switch the mortgage to another lender. Definitely a switchers market at the moment with cash back etc.

Yep absolutely. If things swing the other way and I get a letter from the bank telling me my interest rate is going up due to an increase in LTV it would be hard to argue with. Could go either way.

Agreed on it being a switchers market. What you've described is pretty much what I'm planning to do and once we're <50% just switch provider

Liam D Ferguson

It occurs to me that if you're looking for the LTV-based interest rate to be adjusted down every time you fall into a lower LTV band, then it would only be fair that it would be adjusted up if you fall into a higher one. This poses a practical difficulty. You live in the home and so you have a pretty good idea of what it's worth and how much you owe at any given time. So you know when to apply for the lower LTV band and you pay for a valuation to prove the home's value for this purpose. How is the bank going to know when you've gone into a higher LTV band? I suppose in theory they could implement and maintain a database of the 2018 values of all their customers' houses and then apply property price statistics to them. But they'd still need to get a valuation done when they thought you've gone into a higher LTV band.

How happy would you be to get a call/letter from your bank letting you know that they would be sending a valuer round to your home to verify its current value so that they could put up your interest rate and repayment?

uberwolf

I would say let the bank worry about how it can impose higher rates if the situation calls for it, and let's focus on the question at hand - is the advise received by the OP accurate as it pertains to AIBs T&Cs? My read is no, based on this document which reads that there is no restriction on you continuing to move rate once your ltv merits it, and that they wil write to you annually to let you know whether you can avail.

I'd suggest taking advantage of the lowest rate available to you now (incl. looking at your fixed rate options elsewhere) and worry about the next ltv bracket when that time comes - the rates/policies/products and even banks may have changed by then.

andrew

It would be extremely difficult for a Bank to constantly recalculate the LTV for the mortgages in its portfolio. They'd have to do a revaluation of every single property they hold as collateral, which would be very time consuming and expensive. And it would be procyclical in the sense that people would pay less interest as house prices rise and more interest as house prices fall, which would be bad. You're right in that the current LTV ratio is an important factor in determining whether someone will default, but I'm not sure it's useful for setting the current interest rate on a loan necessarily.

cookie1977

andrew wrote: »

It would be extremely difficult for a Bank to constantly recalculate the LTV for the mortgages in its portfolio. They'd have to do a revaluation of every single property they hold as collateral, which would be very time consuming and expensive. And it would be procyclical in the sense that people would pay less interest as house prices rise and more interest as house prices fall, which would be bad. You're right in that the current LTV ratio is an important factor in determining whether someone will default, but I'm not sure it's useful for setting the current interest rate on a loan necessarily.

You do need to review the LTV periodically in order to get the best deals for yourself. You may even need to if you're extending your property. If you wish to negotiate fixed rates then the best fixed rates will be on lower LTV's. Why wouldn't someone be interested in reviewing their LTV value periodically (every 5 years or so sounds prudent to me)? ANd the owner typically forks out for the valuation too.

andrew

cookie1977 wrote: »

You do need to review the LTV periodically in order to get the best deals for yourself. You may even need to if you're extending your property. If you wish to negotiate fixed rates then the best fixed rates will be on lower LTV's. Why wouldn't someone be interested in reviewing their LTV value periodically (every 5 years or so sounds prudent to me)? ANd the owner typically forks out for the valuation too.

I can't imagine people are keen to review their LTV in a situation in which the value of their house is falling!

cookie1977

andrew wrote: »

I can't imagine people are keen to review their LTV in a situation in which the value of their house is falling!

I'd imagine that person wouldn't be doing that??? I don't see your point though?

andrew

cookie1977 wrote: »

I'd imagine that person wouldn't be doing that??? I don't see your point though?

I should've quoted the bit I was responding to! I was responding to this bit of OP's post:

Seems crazy that LTV can't be continually recalculated to reflect the real world. It's not like it's going to change every week, every few years max.

cookie1977

andrew wrote: »

I should've quoted the bit I was responding to! I was responding to this bit of OP's post:

Makes sense yes. But periodic LTV reviewing by the customer is an absolute must, just not continuous reviewing.

TheShow

Totally impractical. A valuation would have to be carried out each time and the cost of the valuation would probably negate any saving on interest, over say a 12 month period.

Bellview

Golaco wrote:

Agreed on it being a switchers market. What you've described is pretty much what I'm planning to do and once we're

If you threaten to move bank ...with facts from other lender it's generally a good negotiation.
Does higher value impact your property tax band though

BrokenArrows

Golaco wrote: »

Recently spoke to AIB about recalculating my LTV as we've been paying off mortgage for 5 years and house prices have shifted in our favor meaning LTV has reduced

Current LTV based on market rates etc. is <80% so we'd be looking to move to a more favorable interest rate based on that (We're currently in the >80% band and have been since we purchased)

Their adviser told me that if were to move to the <80% LTV band we'd then remain there for the duration of the mortgage and even if I wanted to make a bulk payment in future to drop us to <50% LTV we'd still remain in the 50%-80% band for the purposes of calculating our interest rate

Seems crazy that LTV can't be continually recalculated to reflect the real world. It's not like it's going to change every week, every few years max. Is this standard practice for all lenders or an AIB quirk? Any advice?

Even if you bank had that idea of not recalculating anytime after <80 there is nothing to prevent you finding a better deal with a different bank in the future.

Wheety

TheShow wrote: »

Totally impractical. A valuation would have to be carried out each time and the cost of the valuation would probably negate any saving on interest, over say a 12 month period.

I'm about to switch rates with the same bank for a second time. The first time I needed a valuation and it cost around €130. I was saving €50 a month though for 5 year fixed.

I'm going to break out of that (€0 break fee) and switch to another rate. not sure if I'll need a valuation or not but I'll be saving around €40 a month this time so sometimes it's worth paying for the valuation.

I can't see rates dropping much further (2.65%) so probably won't change rate again for a while.

BrokenArrows wrote: »

Even if you bank had that idea of not recalculating anytime after <80 there is nothing to prevent you finding a better deal with a different bank in the future.

Definitely this. I don't blame banks not constantly reviewing and changing your LTV. The vast majority of Mortgages are like this. You sign up at one LTV and stay at that until it's paid off. You, as the customer, need to check what's available and switch to another deal. Sometimes your bank will move you quite easily, sometimes you have to fight and sometimes you have to switch. It's a bit of a hassle to switch but there could be significant savings if your LTV has changed.