According to a recent Central Bank report, switching your mortgage lender can pay you upwards of ten thousand euros in savings. However, the majority of borrowers in Ireland opt not to do it.
The Central Bank’s research has pointed that 61% of mortgage holders could apply for a remortgage and save more than €1000 in the first year of their term alone and around €10000 over the full loan and still did not switch providers.
Recently, the number of homeowners choosing to switch lenders has increased. However, this switching activity is still noticeably low – 2.9 per cent in the second semester of 2019 – compared to the number of eligible house owners that could apply for it.
The results from the study point that there is a lack of interest from those eligible for mortgage switching in Ireland despite the decrease of interest rates compared to the initial mortgage rate and the new policy initiatives that aim to enhance the switching process.
On what could be separating eligible homeowners from switching mortgage, the study suggests “a diverse range of factors” including “psychological factors, lack of knowledge on the costs and benefits and the perceived complexity”.
The main aspect highlighted by the Central Bank’s report on switching lenders in the Irish Mortgage market was the vast potential for savings on offer for Irish holders as well as identifying the reasons that could be shying families from engaging in the process. Remortgaging can significantly reduce mortgage repayments for the bulk of mortgage holders.
Sixty-two per cent of owner-occupier mortgage holders eligible for a switch – that is more than three in every five – could be saving upwards of 1,000 during the initial 12 months by moving to the best interest rate deal available in the market. Moreover, of those eligible, seventy-two per cent could increase their savings by another one-tenth of the annual repayments amount while sixty-one per cent could still save upwards of 10,000€ during the outstanding term of their mortgage.
The report maintains that the amount one could potentially save will depend on the type of borrower and their age profile with younger buyers and first-time borrowers claiming the most potential savings values. Around 80% of homeowners who switch lenders go for a fixed mortgage, with average interest rates decreasing close to a full one per cent compared to owners who do not switch their mortgage.
The Potential Barriers to Switching Mortgage
Along with presenting savings possibilities from switching mortgage lender and finding why people aren’t electing to follow that path, the Central Bank’s study also observed some of the potential barriers to mortgage switching.
Financial illiteracy or lower levels of education were pointed as likely barriers that keep many from opting to switch mortgage but the “High Inhibition category” was dominated by first-time buyers and borrowers who have taken out their mortgages during the height of the housing boom.
The Association of Irish Mortgage Advisors, in the person of Trevor Grant, has responded to the report saying that “nowhere near enough homeowners review their mortgage offering in the recommended timeframe – which is approximately every two years.”.
Trevor Grant added, “Greater competition in rates in 2020 has meant that the Irish market is now ripe for switching”.
“The crux of the matter for mortgage holders is that their bank would prefer if they didn’t switch.” The Irish mortgage advisor carried on pointing that, while the banks “may offer their customer the lowest rate, they are not obliged to advise them specifically that there are better terms available elsewhere”.
For Trevor Grant, it is a responsibility of the Central Bank of Ireland and consumer advocates such as mortgage brokers to convey the message among mortgage holders in Ireland.