Homing in on big savings
One-in-five mortgage holders would be better off switching, writes Charlie Weston
Published 09/01/2016 | 16:00
ONE of the biggest savings for households can be made by switching a mortgage to another provider.
This does not apply to those on tracker mortgages, which are ultra cheap.
For those on variable rates the savings can amount to thousands of euro a year - over the lifetime of a mortgage, savings as high as €22,000.
Despite these huge savings, few people have been switching since the boom became a bust.
The Central Bank estimates that one-in-five mortgage holders can save by switching.
But the latest figures from the banks show that a minuscule 350 mortgage holders moved to a different lender in November.
That may be up 64pc on the numbers switching in the same month a year previously, but the number of switchers still represents just 0.04pc of the mortgage market.
People are put off because moving your mortgage is a big deal - it involves consulting a solicitor, having a valuation completed, altering mortgage protection or life insurance, and changing direct debits.
This means that inertia gets the better of making big savings.
The other reason many hold back is because they see banks offering low interest rates to switchers, then cutting their rates, but only offering the new lower rates to new customers and not existing mortgage holders, according to founder of Askaboutmoney.com Brendan Burgess.
Karl Deeter of Irish Mortgage Brokers says: "Banks get away with high rates due to customer inertia. When it comes to financial institutions, people will complain but rarely leave." He feels people are foolish to ignore the huge savings that can be made from switching a mortgage.
"If people do the sums and see they can save between €5,000 and €10,000 over a 10-year period, then they would need their heads examined to walk away from that."
Mr Deeter expects banks to stoke up the switching market this year, especially as Central Bank lending rules mean first-time buyers are being squeezed out of the market.
There is already evidence of that with Permanent TSB set to launch a new cash-back offer on Monday for switchers and new buyers, and a one-year reduction in its variable rate of 0.5pc.
Switcher mortgages, where there is no increase in the principal borrowed, are exempt from the Central Bank loan-to-value rules on deposits.
And switcher mortgages, where there is no increase in the principal borrowed, are also exempt from the borrowing limit of 3.5 times the loan's value to gross income.
To compare rates across the different providers, a great place to start is the ConsumerHelp website of the Competition and Consumer Protection Commission.
It has combined all the switching rates from eight different providers into one comparison tool to make it easier for consumers to compare.
Go to ConsumerHelp.ie. Then click on Financial Product Comparisons, which is one of the items on the blue strip at the top of the page. Choose Mortgages, and click on Switchers.
The comparison tool will show you the difference between what you are currently paying and what is available in the market, per month and over the lifetime of the mortgage.
All you need is the market value of your house, the amount outstanding on your mortgage and your current monthly repayments.
A spokesman for the consumer watchdog said: "If a consumer is on a variable rate mortgage or coming to the end of a fixed term, they could make significant savings."
The Competition and Consumer Protection Commission (CCPC) gives an example of someone with €250,000 still to pay on their mortgage.
The home is valued at €350,000, and there are 25 years left on the mortgage.
The monthly payments are €1,400 at the moment, on a variable rate.
According to the CCPC, savings of €73 a month can be made. This works out at €22,000 over the lifetime of the mortgage, due to switching to the lower interest rate.
This example does not factor in additional costs such as legal and valuation fees.
If consumers find a better deal with another provider they should contact their current lender to see what rate they will offer before they consider switching to another provider. Your current lender may match the better deal being offered.
Banks are prepared to offer incentives to switchers to get the business.
Bank of Ireland offers an unlimited 2pc of the value of your mortgage back in cash.
This means if your borrowings amount to €150,000, the bank will give you €3,000. For borrowings of €350,000, the cashback offer amounts to €7,000.
The cash-back offer is available on mortgages drawn down up to March 31 - regardless of the rate, fixed or variable.
Permanent TSB is matching this 2pc cash-back offer.
It is also reducing its managed variable rate by 0.5pc for switchers and first-time buyers, for a year. KBC Bank will pay €2,000 towards the costs of legal fees for those switching their mortgage to it.
Ulster Bank offers €1,500, with Permanent TSB paying €1,000.