Wednesday 23 January 2019

Lenders must now tell customers if they can save on their mortgage

(Stock photo)
(Stock photo)

Charlie Weston & Philip Ryan

Banks will have to tell customers if they can make savings on their mortgages under new rules which have just come into effect.

Around one-in-five homeowners could save money by switching to a better interest rate, recent research found.

The new rules have been introduced by the Central Bank to give consumers more transparency and make it easier to switch provider.

Now banks will have to notify customers 60 days before their fixed-rate term ends and provide details of the new rate. Other options available to the mortgage holder will have to be outlined.

Lenders will be required to let variable rate mortgage customers know every year whether or not they can move to a cheaper interest rate. The changes to the Consumer Protection Code will also mean consumers on a variable rate mortgage will have to be told every year by their lender if they could get a cheaper interest rate due to changes in their loan-to-value ratio.

Many lenders offer lower rates to those who have equity built up in their homes.

People on a tracker mortgage have been advised to stay on that rate as these mortgages tend to be the cheapest.

The changes also introduce a required 10-day turnaround for a decision on switching lender. Mortgage switching in the market is very low, despite the huge savings that can be made. The Central Bank wants to encourage switching. Someone with a €250,000 mortgage paying a 4.3pc variable rate could save over €250 a month by switching to the cheapest rate. This works out at a saving of more than €3,000 a year.

A study by the Central Bank in 2015 of more than half-a-million mortgages found that around 16,000 could save more than €1,000 in the first 12 months by switching to a different lender.

Another 27,000 mortgage holders have the potential to save more than €10,000 over the lifetime of the mortgage.

The new rules will also require mortgage lenders to explain the pros and cons of mortgage incentives, like cash-back schemes.

This applies to new, existing and switching mortgage holders. This is to ensure consumers have sufficient clarity about the precise nature and scale of the benefit of an incentive to them, including the potential impact of an associated incentive on the cost of their mortgage, the Central Bank said.

Daragh Cassidy, of price comparison site Bonkers.ie, said the level of switching in the Irish mortgage market remains chronically low at less than 1pc.

"Quite often we find that customers don't bother trying to switch mortgage as they feel the process is too cumbersome and because they don't realise the potential savings involved. These changes to the Consumer Protection Code should help to address that," he said.

Mr Cassidy said there are some upfront costs associated with switching mortgage provider, but in many cases banks will provide cash back to those who switch or a contribution towards the legal fees.

Director of consumer protection at the Central Bank Gráinne McEvoy said the consumer protection rule changes are focused on helping consumers with lowering their mortgage repayments, where possible.

"Our research has shown that one in five mortgage holders could save money by switching their mortgage, and that significant numbers can make substantial savings," she said.

Ms McEvoy said information to help consumers compare mortgage rates is widely available, including the Competition and Consumer Protection Commission's online mortgage comparison tool.

But Central Bank research shows that some of the reasons people don't switch their mortgage is because they don't realise how much money they could save and also find it difficult to compare mortgages.

The changes are aimed at making it easier for consumers to obtain this information so that they are able to easily identify whether they are able to make savings by switching their mortgage, and make the process quicker and easier to complete if they do decide to switch, she said.

Meanwhile, ministers have been told of serious concerns over banks refusing to agree to "reasonable" personal solvency arrangements with borrowers.

Banks are dragging debtors through the courts rather than agreeing deals under personal insolvency laws which could be presented to a judge for approval.

A Government report on State-funded services for people struggling to pay home loans has found personal insolvency legislation is not having the desired impact as banks are resisting measures aimed at keeping people in their houses.

The report says banks are using procedural legal objections to delay reviews of insolvency cases rather than striking deals. The report by Abhaile, the national mortgage arrears resolution service, also found courts ruled in favour of borrowers in 65pc of personal insolvency cases.

Irish Independent

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