01 Oct 2022

Mortgage brokers want to end Ireland's 'in-built culture of not switching'

Mortgage brokers want to end Ireland's 'in-built culture of not switching'

Mortgage brokers want to end Ireland's 'in-built culture of not switching'

Responding to this week’s Central Bank Economic Letter on Mortgage Switching, Brokers Ireland said more needs to be done to educate consumers and help them overcome the “in-built culture of not switching.”

Rachel McGovern, Director of Financial Services at Brokers Ireland said today’s report marks an important analysis of the issue.

“It identifies 182,272 ‘eligible switchers’ and three in five of these mortgage holders, that is, 109,363 individuals or families, stand to save €1,000 within the first year of switching and more than €10,000 over the remaining term,” she said.

She said the report identifies the many barriers to switching with the top four being: concerns about legal costs; consumers looking for a long-term guarantee of an interest rate advantage; a lack of knowledge about what savings could be achieved and the complexity of switching.

“The fact of the matter is all of these issues could readily be addressed. The substantial savings are readily quantifiable and in the last year the switching process has become much less complex to undertake,” she said.

Ms McGovern said a consumer-focused awareness campaign could readily address these issues.

She said those with most to gain from switching mortgage providers are those who took out loans a year or more ago and who haven’t reviewed their situation.

Interest rates have dropped gradually from around 5pc to 6pc in the last decade until 2016 when they dropped to the high to mid 3pc range, and more recently to an average of 2.83pc in August.

She said a 1pc interest rate reduction could make “a truly substantial difference.”

Ms McGovern said while interest rates remain historically low, consumers do need to factor in the medium to long-term scenario which could change.

“Therefore, it may be worth considering good fixed rates, depending on your circumstances, for the longest period possible that you can get them, which is currently 10 years,” she said.

“Consumers need to be encouraged to be proactive on this front, or consult a broker who has the expertise and will do all of the legwork and advise of the best options given the particular circumstances.”

She said many mortgage holders are unaware that most lenders have a lower interest rate where there is a better LTV (loan to value) - the ratio of your loan to the current value of your home. 

“If your home has increased in value in recent years, as most have, and you haven’t reviewed your mortgage, chances are you’re entitled to a reduced rate of interest.”

She said by shopping around you may not even have to change lender. “The mere prospect of your considering a move might tempt your existing lender to offer you a better rate,” she said.

Switching a mortgage from one provider to another is not subject to the standard Central Bank rules. You can switch up to 90pc LTV, and with most lenders you’re not restricted to borrowing only 3.5 times your income. 

Many lenders are now actually incentivising switching and re-mortgaging to obtain what they regard as premium consumers with excellent LTV ratios and proven repayment ability.

She said offers generally come with incentives such as cashback on drawdown, or money towards legal fees. “But consumers need to be alert to the apparent attractiveness of a short-term incentive versus the long-term savings that are to be gained.”.

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