This week, The Central Bank of Ireland made a number of proposals designed to increase mortgage switching and help consumers make “significant savings” on their mortgage repayments. But will the proposals have the desired effect?
In April, the Central Bank of Ireland published a report that highlighted two very interesting facts about mortgage switching in Ireland.
1 - the vast majority of people who switched mortgages had a positive experience doing so. Good news!
2 - many householders are leaving “significant sums of money” on the table by not switching. In fact, 44% of those surveyed said they avoided switching because they thought the process would be too complex.
There’s a gap between expectations and reality here, which is potentially costing borrowers tens of thousands of euro in missed savings.
To bridge the gap, the Central Bank has made a number of proposals to increase awareness of switching and to make the process easier. The proposals are subject to a consultation process that will run until November 1st of this year.
So, what are the proposals and will they actually make it easier to switch mortgages?
Fixed rate expiry notification
The Central Bank is proposing that banks contact their fixed rate customers 30 days before their fixed rate is due to expire and provide details of what their new rate will be.
And in the event that the new rate isn’t going to be a tracker rate, the bank must also share a link to the CCPC mortgage comparison tool along with information about other rates in the market.
This change would likely reduce the number of fixed-rate customers being bumped on to worse rates without knowing that there may be alternative options available to them.
Annual update for variable rate customers
The Central Bank is proposing that banks make contact with their variable rate customers once a year to let them know if they are eligible to switch loan-to-value interest rate bands, subject to the provision of an up-to-date valuation.
If the bank in question doesn’t allow customers to move between LTV bands, it would have to inform them that lower rates may be available from other banks and provide a link to the CCPC’s online comparison tool.
In case you weren’t aware, you can also compare mortgage rates on bonkers.ie. If you do so, you can also set up a free phonecall consultation with a qualified financial advisor to discuss your options.
Clarity around cashback incentives
We recently analysed whether or not mortgage cashback incentives are good value, and the results were mixed.
The Central Bank is aware that cashback deals aren't always the best option for customers and is therefore proposing that banks explain the potential impact of incentives on the overall cost of a mortgage.
This initiative would certainly help customers resist the lure of a large lump sum if it isn't the best option for them.
The Central Bank would also like to help consumers gain more confidence when it comes to comparing rates.
With this in mind, it is being proposed that banks provide customers with a clear breakdown of how the total interest payable on their existing mortgage compares to the overall cost of an alternative option.
An additional proposal from the Central Bank is to oblige banks to provide upfront information, such as switching guides, predicted timelines and standardised application forms to customers who are considering switching.
Having a clear sense of the entire mortgage switching process would allow customers to make an informed decision about whether or not they should move forward with an application.
One of the most challenging aspects for customers switching mortgages is the uncertainty over how long the process will take.
To combat this, it is being proposed that a range of standardised timelines be implemented across all banks.
For example, the Central Bank would like to see banks acknowledge receipt of documents within three working days and provide a decision on whether or not to approve a customer within 10 days of receiving all necessary information.
To help make the process easier, the Central Bank would also like each bank to provide a dedicated point of contact for customers who are switching.
The Central Bank’s mortgage switching proposals are still subject to a consultation process, but the mere fact that there are actions being taken on the issue is good news for borrowers.
As the Central Bank has found, there are “significant sums of money” to be saved by switching mortgages and the lack of transparency around the process has prevented many borrowers from taking advantage.
A standardised switching system made up of clear timelines, transparent information and regular reminders to compare the market would be a very welcome change to Ireland’s notoriously complex mortgage market.