Thursday 23 November 2017

Charlie Weston: €2,000 a year can be saved by getting a better variable mortgage rate

Inertia gets the better of us and stops us making huge savings by switching for a better deal on our high-cost variable rate mortgages

If people did the sums they would see they could save between €5,000 and €10,000 over a 10-year period simply by switching mortgages.
If people did the sums they would see they could save between €5,000 and €10,000 over a 10-year period simply by switching mortgages.

IN one move you could give your bank a bloody nose, help the economy recover and save yourself a fortune.

All this, and more, can be achieved by moving your mortgage to another lender.

Another plus is that those pesky Central Bank lending restrictions, on deposits and the amount you can borrow relative to your income, do not apply to mortgage switching as long as you do not borrow more.

Savings of €2,000 a year can be made by getting a better variable mortgage rate.

Yet few people, over the last nine years of housing market bust and slow recovery, have engaged in the switching process. The numbers are picking up, but are still low.

Of course, none of this applies to those with ultra good value trackers. You can't switch from one bank to another and keep a tracker.

That means that the 45pc of the mortgage market who are on trackers are not for moving.

But a similar percentage are on variable rates, with around 12pc on a fixed rate, according to the Central Bank's latest Household Credit Market Report.

People in negative equity, where the value of the property is less than the amount of money borrowed to buy it, cannot switch. Those in arrears are also excluded from the switching game.

However, a recent study by the Central Bank estimates that one in five mortgage holders can switch, and they can save money by doing so.

An analysis of more than 500,000 mortgages found that in some cases, switching could produce savings of more than €10,000 over the lifetime of the loan.

Some mortgage holders could be €1,000 better off in the first 12 months, while others could see savings of more than €10,000 over the lifetime of the loan.

If you move, some banks offer to pay your legal costs of moving, or house insurance.

So why do more of us not do it?

After all, if we did it in big numbers it would put downward pressure on variable mortgage rates, which in this country are the highest in the Eurozone.

One of the main reasons people do not switch their mortgage is because they do not think they will end up with a better deal, according to research commissioned by the Competition and Consumer Protection Commission.

The research found that small numbers of mortgage holders have even considered switching.

Only one in seven mortgage holders have thought about switching, or actively engaged with their mortgage lender in the past five years.

The mean reasons cited for not comparing, or switching mortgage provider, were that people think there would not be any benefit from moving provider, switching has never being considered, and the family already has a tracker rate, or is tied into a fixed rate.

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. And banks get away with charging high variable mortgage rates due to that inertia.

When it comes to financial institutions, people will complain - but rarely leave.

But we are being foolish if we ignore the huge savings that can be made from switching a mortgage.

If people did the sums they would see they could save between €5,000 and €10,000 over a 10-year period.

That is a lot of money. If it was spent in the economy, instead of going to banks, it would help us all.

One of the main reasons people do not switch their mortgage is because they do not think they will end up with a better deal

Irish Independent

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