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Mortgage switching hits record high as the European Central Bank gets ready to hike rates

New lending remains at just a fraction of Celtic Tiger levels with €12bn expected this year compared to a 2006 peak of almost €40bn

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Many homeowners are looking at their loans as interest rates are set to rise. Stock image

Many homeowners are looking at their loans as interest rates are set to rise. Stock image

Many homeowners are looking at their loans as interest rates are set to rise. Stock image

Irish homeowners are switching lenders as never before with switchers now accounting for almost a quarter of all new mortgages being approved.

Lenders approved 5,355 new mortgages with a total value of €1.45bn in May, according to figures compiled by Banking & Payments Federation Ireland. While the volume of new mortgages approved was up 14pc on the May 2021 figure, the value of new mortgages approved was up 25pc.

With house prices having risen by 14.2pc in the year to April, the increase in both the value and volume of new mortgages being approved hardly comes as any surprise. Less expected has been the huge upsurge in the number of homeowners remortgaging or switching lenders altogether.

In May 2022, 1,237 (23pc) of the new mortgages approved were switchers. It was a similar proportion when measured by value with €329m (22.5pc) of the total getting the green light switching.

For the first five months of 2022 the banks approved a total 21,750 new mortgages of which 4,271 (19.6pc) were switchers. This represents a huge increase on last year’s numbers.

Back in May 2021 just 585 (12.5pc) of all new mortgages approved were switchers. For the whole of 2021 the figure was 7,267 (13.6pc). In rough terms we have gone from one in eight of new mortgages approved being switchers to almost one in four in the space of just 12 months. So why does everyone suddenly want to switch lender?

BPFI chief executive Brian Hayes puts it down to two factors.

“With Covid-19 a lot more people were working from home. This gave them the opportunity to check their loan documentation and ring around other lenders. The other thing is the expected interest rate increase from the ECB.”

Maybe, but is the rapid increase in switching telling us something else? While house prices are now back to within 2pc of their pre-crash highs, new mortgage lending remains at just a fraction of Celtic Tiger levels, a forecast €12bn this year compared to a 2006 peak of almost €40bn.

This is reflected in the fact that the main banks’ Irish mortgage books aren’t showing any underlying growth.

AIB’s Irish mortgage book shrank by 4pc to €28.3bn in 2021, Bank of Ireland’s contracted by 2pc to €22.4bn, while Permanent TSB’s grew by 1pc to €14.3bn.

While both Bank of Ireland and Permanent TSB will record substantial increases in their mortgage books this year, this will be largely due to one-off factors.

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Bank of Ireland is acquiring most of the departing KBC Bank Ireland’s loan book while Permanent TSB has agreed to purchase a large chunk of Ulster Bank’s loans as it too heads for the exit.

Strip out such exceptional transactions and it is clear that the banks’ new mortgage lending has, until now at least, hardly covered repayments on existing loans and the sale of legacy non-performing loans.

There is also a significant gap between new mortgages being approved by the banks and the loans that are actually drawn down.

In 2021, while the banks approved €13.4bn of new mortgages, only €10.5bn were actually drawn down.

This gap between new mortgages approved and loans actually drawn down has continued into 2022 with 12,091 loans with a combined value of €3.23bn being approved in the first quarter but only 9,910 loans worth €2.5bn actually being drawn down.

Is this merely a timing effect with new mortgage approvals rising sooner than drawdowns as lending volumes return to more normal levels or are the banks, heaven forbid, helping to push up house prices by giving mortgage approval to multiple would-be buyers of the same property?

Hayes is adamant that the banks aren’t playing games in the mortgage market.

He argues that, despite the imminent departure of the two main foreign-owned banks, KBC and Ulster, from the Irish market the upsurge in switching shows that there is still genuine mortgage competition.

“Including the non-banks there are still eight [mortgage lenders] out there”.

However, a number of these lenders are owned by other lenders with EBS and Haven both being AIB subsidiaries.

With the departure of the foreign-owned banks just three lenders – AIB, Bank of Ireland and Permanent TSB – will totally dominate the Irish mortgage market.

The days when the standard variable rate mortgage dominated the market are long gone.

Over half of all home loans, 53pc, are now fixed rate with 36pc of all mortgages fixed for three years or more. With central banks everywhere pushing up interest rates much more quickly than had previously been anticipated, homeowners are rushing to lock in the current low interest rates while they still can.

It would appear from the recent upsurge in switching that, while they are at it, many homeowners seeking to fix their mortgage interest rate are also changing lender.

Despite recent figures from the Central Bank showing that the average mortgage interest rate paid by Irish homeowners is 2.77pc compared to a eurozone average of just 1.59pc, Hayes is adamant that there is plenty of choice available to borrowers.

“The notion that when the other banks left the market that there would not be any competition hasn’t been borne out by the facts. Something is happening. People need to shop around”.


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