100,000 could benefit from mortgage switch but many don't bother
More than 100,000 people on expensive variable rate mortgages could make huge savings by switching to a lender with a lower interest rate, the Central Bank has calculated.
More switching would force banks to cut variable rates across all banks.
People are put off switching because they think the process will be costly - and they are overwhelmed by the complexity of the information.
But the collective savings to those on high variable rates could amount to €65m in the first year alone, the new Central Bank study found.
It calculated that some 16,000 people could reduce what they are paying for their mortgages by around €1,000 in the first 12 months after making the move to another provider.
And roughly 27,000 homeowners would save €10,000 over the lifetime of their mortgage, it says in the study entitled 'Switch and Save in the Irish Mortgage Market'.
The research found that 21pc of the 522,407 mortgage accounts it looked at would be cheaper if they moved. This works out at close 110,000 mortgages.
It costs around €1,200 in legal fees to move a mortgage, but most banks cover this cost. The new academic paper says an active switching market would mean lower mortgage rates "through the promotion of healthy competition between existing players".
It said large numbers of those on variables are unable to switch lender because they are in arrears, are in negative equity or have very little left to pay.
People on trackers would not benefit from moving to a new mortgage lender.
Just 38 homeowners a month are switching at the five main banks, the research found. There are a number of reasons for this, including that banks may match an offer when a mortgage holder threatens to switch.
Other factors putting off switchers include a misplaced perception that there will be a large cost to the homeowner.
Potential switchers struggle to absorb the complexity of the information on different mortgage options, it says.
And they also put off the decision to move, something known as "naive procrastination". The research found that people put too much emphasis on short-term gains, forgetting that savings can be huge over the life of the loan.
Meanwhile, new buyers who take out a mortgage with Permanent TSB are to get a discount. The bank will reduce the mortgage rate by 0.5pc for a year for new variable rate customers.
The move will mean new mortgage customers can secure variable rate mortgages from 3.2pc, where the loan-to-value is less than or equal to 50pc.
It is also launching a series of new fixed rate options which it says are market-leading at 3.29pc, where the property is worth at least 20pc more than the mortgage taken out on it.