Charlie Weston: Few set to gain from mortgage switching
Large numbers on variables unable to move to a new bank
Published 11/07/2015 | 02:30
Only a small number of families who are paying over-priced variable mortgage rates will be able to switch to another bank.
This is despite Finance Minister Michael Noonan's advice that mortgage holders paying over the odds should change provider.
No bank has cut variable rates since Mr Noonan hauled six of them into his office in May demanding reductions.
Reacting to a report from the European Commission saying banks should not be forced to cut variable rates, Mr Noonan urged customers to switch provider in order to get a better deal.
"People need now to look at the competitive rates. I think there is a great case to be made for switching from one mortgage provider to another," Mr Noonan said.
And Central Bank governor Patrick Honohan said recently as many as 15,000 holders of variable-rate mortgages could see their repayments fall by more than €1,000 a year by switching provider.
But 15,000 mortgage holders only represents around 5pc of the 300,000 people with high-cost variable rates.
Variable rates here are twice those charged in the eurozone average, and a multiple of tracker rates. A Central Bank report found that variable rates here are the highest in Europe, ratings agency Fitch said yesterday.
But mortgage experts urged caution about switching to a new lender, or fixing rates.
Michael Dowling, a broker from Abacus Finance in Dublin, said that very few would benefit from switching.
"There is not a huge amount of switching going on. Just 4pc of the market switched last year. And there are an awful lot of people who are excluded from switching."
Mr Dowling said those in negative equity, those in arrears, and anyone with a poor credit history would not be able to switch. Customer inertia also plays a huge role, he said.
Homeowners should only switch banks if they can make big savings.
"If you are on a variable rate of 4.5pc and can get 3.5pc with KBC, assuming you have a 60pc loan to value, it makes sense. You will get €2,000 towards your legal fees from KBC," Mr Dowling said.
To get the 3.5pc rate means moving your current account to the bank.
People should consider the fixed rate offered by their bank, but whether they take it up depends on how high their variable rate is, he said.
He said he was doubtful there will be further cuts to variable rates.
"We have not seen any move on standard variable rates despite the Government creating expectations it would happen," the mortgage expert said.
The Professional Insurance Brokers Association (PIBA) said careful consideration needs to be given before opting for fixed rates, or moving to another lender.
Many of those switching to a different lender are locking into fixed rates with the new bank.
Rachel Doyle of PIBA said: "Such fixed rates have serious limitations and these need to be understood," PIBA said. There are penalties associated with breaking the fixed period.
"The high variable rates are forcing people into fixed rates but they do come with a health warning, they are only suitable for people who need certainty over a period," she said.
Ms Doyle said that given the volatility arising from the Greek crisis and now China it is impossible to predict with any degree of certainty what will happen to interest rates.
"What is certain, however, is that mortgage holders who, having given due consideration to the issue, opt for fixed rates, will revert to a variable rate at the end of the fixed period and there is no way of knowing whether that will be higher or lower than the fixed rate."
Ms Doyle said there is not sufficient competition in the Irish market currently. And she said there is now considerably less risk for banks attached to funding a mortgage.
"Such risks are far less than they have ever been."