OREANDA-NEWS.  The Central Bank has published an Economic Letter entitled ‘Switch and Save in the Irish Mortgage Market?’ The research examines the opportunities that exist for mortgage holders to switch between lenders and the key findings are as follows:

  • Based on the analysis of over half a million mortgages, up to 21 per cent of loans could save money by switching.
  • Roughly 1 in 2 borrowers cannot currently find a cheaper floating rate mortgage in the market. The main reason for this is the prevalence of tracker mortgages in Ireland. The rates payable by this cohort of mortgage holders are below any rates likely to be offered by a new entrant to the mortgage market at any time in the future.  
  • 33% of the sample total could make savings by switching, but are not in a position to switch for a variety of reasons, including: small loan values; the existence of an arrears balance on the account in the past 12 months; and high loan-to-value ratios of over 90%.
  • For those mortgages which can save money by switching, approximately 16,000 will save over €1,000 in the first 12 months, and circa 27,000 switchers have the potential to save in excess of €10,000 over the lifetime of the loan.
  • The upfront financial costs faced by consumers when switching mortgage are primarily made up of legal and valuation fees which can amount to approximately €1,300. The majority of lenders cover at least €1,000 of this fee.  Therefore the net financial cost of switching can be estimated to be up to €300. Almost 70% of potential switchers would cover the net financial cost within one year of switching.  
  • Although there are potential savings to be made, the number of incoming switchers averaged just 38 per month at the 5 main banks since January 2014. One possible explanation for the low number of switchers is that the existing bank may match the best offer available to the customers who attempt to switch and thus eliminate the need to switch. Behavioural economic research can also offer some insights into the low switching activity in the market.
  • Increased information and greater transparency on mortgage products and switching options would be beneficial. The potential savings available to switchers may present opportunities for new entrants to the Irish mortgage market, particularly as variable rates charged in Ireland remain above euro area averages.