MOST homeowners will not opt for a cheaper mortgage rate even when it is offered to them at no cost, a new survey has found.
Research by the Central Bank has found that only a third of mortgage holders who were offered a cheaper lending rate took up the offer.
This was despite the fact that they could have saved €490 in the first year, and €5,400 on average overall.
The findings confirm that high levels of inertia are leading mortgage holders to lose out on better deals.
Some 46,000 mortgage holders from one unnamed bank were sent a letter outlining a cost-free option of getting a lower mortgage rate.
But 67pc did not take up the offer, the study by the Central Bank reveals.
They were offered a better rate based on their loan to value.
This is where lenders offer lower interest to those with equity built up in their homes, as there is less risk to the bank if those with low loan to values were to default.
The research paper by economist Kenneth Devine says: “The marketing letter provided a cost-free opportunity for mortgage holders to avail of a lower interest rate at their current loan to value (LTV) ratio.
“Using a loan level dataset of 46,000 borrowers, I show that despite no financial cost, only 33pc of eligible borrowers refinanced.”
The paper, ‘Refinancing Inertia in the Irish Mortgage Market’, says international research has shown inertia when it comes to engaging with a lender to get a better lending rate is a major problem, even though people are losing out by doing this.
Previous Central Bank of Ireland research has found that many customers were concerned that mortgage switching would be too complex to engage with and were uncertain of their ability to save money.
Some borrowers deferred refinancing due to inattention or a lack of motivation to re-engage with their lender.
Single borrowers were less likely that couples to take up on offer of a better rate.
Self-employed mortgage holders were also less likely to opt to refinance, even though their income flows are uncertain.
Those on higher incomes, and with larger balances still to pay on the home loan and years left on the mortgage, were more likely to take up an offer of a lower lending rate, the research found.
Older borrowers were more likely to uptake the offer straight away.
Those who have missed payments in the past are among the least likely to react of offers of better rates from their lender.
“This shows that a negative experience can reduce engagement with borrowers over other mortgage decisions.,” Mr Devine wrote.
And first-time buyers were reluctant to refinance. It is speculated in the paper that new buyers who have recently taken out a mortgage might be less willing to re-engage with their lender if they had only done so recently.