Home in on a better mortgage and boost your spending power
One-in-five homeowners could be better off by moving to another lender, writes John Cradden
YOU could potentially save over €2,000 a year on the cost of your mortgage by switching to a different lender.
But it seems that only a more efficient switching process and clearer information on the upfront costs of switching will encourage more homeowners to consider it.
Recent published research by the consumer watchdog, the CPCC (Competition and Consumer Protection Commission), shows that only about one-in-seven mortgage holders have thought about switching or actively engaged with their mortgage provider in the past five years.
Just 2pc have actually switched their mortgage over the same period.
Among the CPCC's findings was that those who hadn't considered switching believed it wasn't worth their while or because they were on a tracker mortgage.
Experts recommend hanging on to your tracker mortgage because they remain, by far, the cheapest.
This is despite 2015 research by the Central Bank showing that one-in-five homeowners could save by switching.
Among the small number who had switched their mortgages, many of them said that the process was over-complicated, involved too much paperwork and took longer than they expected.
"Getting a mortgage for the first time can be time consuming and difficult and that experience stays with people," said Simon Moynihan of price comparison site Bonkers.ie.
"And what's unfortunate is that switching your mortgage can require just as much paperwork as the first mortgage with most banks."
He added that only Ulster Bank offered a "somewhat streamlined mortgage switcher process with a little less paperwork".
Mr Moynihan also said another issue with mortgage switching is that family circumstances might have changed, which means that some customers would no longer qualify for their own mortgages if they were to start again.
"Having said that, there are a huge number of people on standard variable mortgage rates that could benefit by switching, and the switching process can be completed in six to eight weeks because the customer is already living in the property with the mortgage."
The CPCC survey showed that most homeowners who switched were done and dusted in less than two months.
It's understood that the Central Bank is looking at ways to try and encourage lenders to make the switching process simpler and quicker.
"If we really do want to encourage mortgage switching, the Central Bank may wish to consider developing a process similar to the Code of Conduct on the Switching of Current Accounts, which banks must adhere to and which makes switching current accounts easy."
Although the switching process could be made easier, it's still a big deal. It involves consulting a solicitor, getting a valuation on your home, altering mortgage protection or life insurance, and changing direct debits. There may be other fees to contend with as well, such as broker fees and penalty fees that may apply if you want to break out of a fixed rate product.
But a very good place to start is the Financial Product Comparisons section at Consumerhelp.ie, which is run by the CPCC.
In the mortgage production comparison section, there is a tool for comparing switcher mortgages, which will show you the difference between what you are paying and what is available on the market right now. Someone with a house worth €350,000, but with €250,000 still to pay on their mortgage over the next 25 years, and paying €1,400 a month, could save as much as €188 a month, or nearly €57,000 over the term of the mortgage, by switching to the lowest rate on the market - currently from Ulster Bank at 3.2pc APR (although you'll need to be an Ulster Bank current account customer if you're not already).
Given that the switching process can be a bit of a pain, it's well worthwhile making enquiries with other banks and getting quotes and then approaching your lender to ask what rate they would offer to stop them from switching.
There are signs that banks are moving to prevent customers from switching. Bank of Ireland recently reduced its one, two, three and five-year fixed rates.
Its two-year (3.35pc) and five-year (3.45pc) fixed rates are among the lowest rates on offer for the example above.
There are also incentives and special offers available on switcher mortgage packages with some banks.
Permanent TSB's 3in1 mortgage gives you 2pc of the value of your mortgage back in cash if you draw it down before June 30. The Bank of Ireland offers a similar incentive if you draw down a mortgage with them before September 30.
Ulster Bank offers €1,500 towards legal fees on all new residential mortgages taken out by June 30, along with a free valuation, while KBC offers €2,000 towards legal fees as long as you draw down the mortgage before June 30. It also has a 50pc discount on its home insurance product for one year.
Can you bank on getting a switch?
It's all very well to decide that you want to switch mortgage providers, but it's worth taking the time to sit down and make sure your finances look as clean as possible.
This is because banks will still do the same due diligence on you as they would on a first-time buyer, which means getting six months of pay slips, bank statements and credit card bills to hand for their inspection.
So if you went into credit card debt for a few months or built up an overdraft or, worst of all, missed a couple of mortgage payments, then you might find it difficult to get approval from another bank. Another factor to bear in mind is that lenders will generally only consider switching applications if your loan to value ratio is 80pc or less of the value of the property.
If you are still in negative equity even with rising prices, your options may be more limited, although it's not impossible.
The good news is that the Central Bank's new loan-to-value rules on deposits don't apply to switcher mortgages where there is no increase in the principal being borrowed.