We are not a country known for frequently changing providers. We appear to display an apparent aversion towards hunting for the best deal, and far too many individuals are quite content—even willing—to squander a significant sum of money annually. This stems from an ill-placed sense of allegiance, indolence, bewilderment or apprehension, or perhaps a blend of these factors.
Shocking as it may seem, approximately one in seven individuals have never considered switching their utility or gas provider, even though making such a move could potentially bring down their annual bills by around €500. Ironically, a similar proportion of us have remained with our health insurance provider for years on end, despite paying hundreds more than we absolutely need to.
Moreover, even fewer individuals hunt for better offers by transferring their mortgages from one provider to another. This is surprising given the hefty savings that can be availed by the clever minority who opt to take such steps. With over 700,000 mortgages registered with Irish banks, the number of individuals who switched their home loans to another provider last year is shockingly low—low enough to comfortably fit into the 3Arena with ample room to spare.
So, what’s the potential saving size? In short, it’s substantial. A review conducted by the Central Bank on mortgage-switching activities divulged that 61% of eligible switchers could save in excess of €10,000, while 13% could benefit by saving over €30,000 if they shifted their business to another provider. The savings might well exceed these figures, too.
Earlier this week, it was disclosed that the highest mortgage rate in the Irish market has now doubled the lowest rate, varying from 3.45% up to over 7%. This discrepancy is due to recent rate drops, leading to enormous possible savings for savvy homeowners who switch lenders.
According to the Mortgage Switching Index released by brokers at doddl.ie, some homeowners could be unnecessarily paying as much as €7,812 more every year than they need to by staying with their current lender. This figure has seen a drastic increase from €3,587 a year ago, making it even more important to switch. The index is computed based on an average new mortgage drawdown in the last quarter of €309,502, and a highest roll-out variable rate of up to 7.15%, in comparison to the lowest standard rate available in the market, which currently stands at 3.6%.
A stark 42 per cent disparity has been recorded between the lowest and highest monthly repayments of 25-year mortgages, with payments ranging from €1,566 to €2,217 respectively. Householders who qualify for Green rates potentially stand to save an additional €300 annually, with the most affordable rates beginning at 3.45 per cent, this translates to an annual saving of approximately €8,113.
Martina Hennessy, Managing Director of doddl.ie, emphasises the importance of remaining vigilant to potential rate decreases. She says, “The prospect of paying more than necessary on a mortgage is unappealing to most. Thus, the possibility of further rate reductions is pertinent.” She notes that the majority of mortgage holders prefer certainty and are not inclined to gamble on their mortgages.
A decrease in rates have led to competitive sub-3.5 per cent rates, however these are not as low as the sub 2 per cent levels seen in 2022. Unusual economic conditions would be required for a return to those rates. For those waiting for a rate drop from their current lender, Hennessy suggests exploring the market for the best rate available at the moment. She strongly encourages not settling for the rate offered by a current lender, but to consider switching if it proves beneficial.
The process of switching mortgages has become less of a hurdle with the arrival of switcher incentive packages offered by five different lenders. These lenders have also eased the document requirements for potential switchers. These incentive packages offer cashback deals ranging from €1,500 to 2 per cent cashback of the total mortgage amount. The cheapest rate currently accessible comes with a €3,000 cash offer.
Despite this, there’s a notable lack of mortgage holders with good Loan-to-Value ratios making the switch. An Economic and Social Research Institute (ESRI) unit attempted to decipher this phenomenon a few years ago. Their investigation found that when more than one factor, inclusive of price, was used to compare two similar products, it was difficult for consumers to discern which offered better value. They found that if a product’s description included four factors – the interest rate, loan term, bank operating hours and cashback – along with the price, it became virtually impossible for individuals to accurately identify the best value.
The research additionally unveiled customary prejudices in buyers’ decisions, with the majority of individuals presuming that more costly products are superior to their less expensive counterparts, even when it’s evident that the pricier ones are excessively priced.
Indeed, the fear of making an error when comparing products is pervasive. It’s paramount because while it may prevent individuals from making unsuitable selections, it could also deter them from making correct decisions.
Mortgages bring an entirely different set of complexities. Some individuals find themselves cornered, compelled to cough up exorbitant rates by predatory investment funds. Some suffer from a less-than-optimal credit score and would find it a challenge to switch mortgage providers. Additionally, there’s a group of borrowers nearing the end of their tracker mortgages who are prepared to brave the volatility of the European Central Bank.
A majority of loan borrowers are hesitant to change their mortgages or even negotiate an improved rate with their current lender due to worries it might jeopardise their existing position or home. They also worry that they may have to go through the same grueling processes they faced when they first acquired their property.
However, neither of these concerns hold water.
As a home-loan borrower, you retain control and have the power to decide whether to switch your loan. Taking such a step wouldn’t jeopardise your property. Fundamentally, switching is a mere transactional process to transition from one lender to a more cost-effective one.
The initial stage involves researching what would be a suitable option for you. Next, determine the requisite paperwork– bank records, earning slips and others. It might take a week to gather all the documents, but given the potential to save thousands, it’s undoubtedly a worthy undertaking.