Thursday 29 September 2016

Charlie Weston: If we are happy to do nothing, why should banks cut their rates?

Published 14/04/2016 | 02:30

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Sometimes it is easy being a banker in this country.

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The bank kicks and assaults us, and we invariably take it.

Like all fraught relationships, we retain a false hope that some day the shouting and the kicking will stop.

But why should it, as we are prepared to do so little ourselves to ensure that we are treated with respect.

The situation around mortgage switching is a good example where we are not doing enough to help ourselves.

We are, instead, allowing inertia to get the better of us.

A combination of concern that we will not get a better deal and the complexity of the switching process, means most people do not consider switching their mortgage.

And boy, are there big savings to be made from switching your mortgage to another provider.

Some 300,000 people are stuck on expensive variable rate mortgages. A large chunk of those could move to another lender and avail of a much lower interest rate.

Savings of €2,000 a year can be made this way.

But there is a big reluctance to even consider switching, never mind going through with it.

Research commissioned by the Competition and Consumer Protection Commission shows that just one in seven mortgage holders have thought about switching, or contacted their lender to discuss it, over the past five years.

Some people on variables have never even considered switching.

This is a real pity, not just because it means these people are shunning the potential for huge savings - remember that Central Bank lending rules on deposits and income multiples do not apply to switchers. It is also a pity because it lets bankers off the hook.

They have no need to be competitive and cut variable rates - which are the highest in the eurozone - if the switching market is muted.

Some banks charge as much as 3.95pc on variable rates. Two things will prompt big cuts.

These are new banking competitors, and an active switcher market.

Much greater levels of switching would engender assertive consumer behaviour - the very activity our banks fear most.

There are signs that mortgage switching has begun to pick up again but we still have a long way to go before banks start to cut variable rates.

Today's research found mortgage holders would like a quicker - and more efficient - switcher process.

That would certainly help. The Central Bank has talked about this. Now is the time for action from the regulators.

Irish Independent

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