With the European Central Bank at the beginning of a monetary loosening cycle, now may be the right moment to think about switching your mortgage to a new provider.
A just-published Central Bank research note tells us that there’s been a slowdown in switching activity in the retail bank sector in the past year.
Joey Sheahan, Head of Credit at online brokers MyMortgages.ie says that this slowdown is concerning because it means that thousands of people could be paying over the odds for their mortgage.
“Before the recent ECB decision to cut interest rates, there was a real sense amongst mortgage holders that there was no point in even trying to switch because there was little to no competition in the market. While it’s true that lenders were increasing rates, they were still vying for mortgage business, so there was still value to be had for certain borrowers.”
He points out too that because property prices have continued to climb, loan-to-value ratios are falling, meaning that thousands of mortgage holders should be in line to capitalise on these developments in the form of landing better mortgage rates.
“We would hope that following the ECB’s rate cut, more people will now reassess their mortgage offering with a view to securing a better rate.”
The Central Bank research notes also show that non-bank lenders continue to establish a firm position as a cost-effective option for Irish mortgage holders. Figures in the report show that the share of mortgage switchers who moved to non-bank lenders increased from 20% at end-2020 to 60% in mid-2022. The report also highlights however that non-banks lend more during periods of ‘loose’ financial conditions and tighten credit more rapidly in periods of tight financial conditions.
“We should note as well that this report does not include switching mortgage arrangements with your existing lender. This can be a prudent financial move for some mortgage holders — and one that is more straightforward than switching institutions.
Trevor Grant, chairperson of Irish Mortgage Advisors says that the report “rightly” points out that
switching, and in particular fixing a mortgage interest rate, can lower up-front borrowing costs and insulate a borrower from future increases in interest rates.
“The expiry of tens of thousands of fixed-rate mortgages in the coming months will see more wanting to switch their mortgage in order to obtain the best terms available. We are already seeing people coming off fixed-rate mortgages and this will continue for the remainder of the year.
“Faced with a big jump in their monthly mortgage rates as their pre-2022 ultra-low fixed-rate mortgage deal expires, many will be looking to move to an alternative lender — or to secure the best possible deal with their existing lender.”
Mr Grant believes that after a year of stalemate in the switching market without much incentive for people to switch, the tide may finally be turning. He says that now is a really good time to shop around to get a good deal.
“There are some really good switching incentives out there now. Before being tempted by a switching bonus or incentive though, it’s crucial to compare the overall cost of other mortgages on the market — and to see if you would save more money in the long run by opting for a lender who offers a lower interest rate rather than a special offer. A lower interest rate on a mortgage may be more valuable than a bonus on a more expensive mortgage.”
While the bonus might put a few thousand into your back pocket initially, a cheaper mortgage could save you thousands over the terms of any new fixed rate agreed, and perhaps tens of thousands over the lifetime of your loan, depending on the amount borrowed and the mortgage term.
As part of its review of the Consumer Protection Code, the Central Bank is currently examining a number of measures which could make it easier for consumers to switch mortgage — as well as how certain barriers to mortgage switching, such as the length of time and costs involved, could be overcome.
The timely release of title deeds is an essential part of a fluent switcher market and any improvements in this regard would be hugely welcome. For most people, their mortgage is their biggest financial commitment and it’s important there are no hurdles in the way of shopping around for better value.
Mr Grant points out that in its review of the Consumer Protection Code, the Central Bank has proposed a number of measures to help consumers better understand the impact of mortgage incentives, such as cashback, on the overall cost of their mortgage.
These include a warning to customers to consider the impact of the incentive on the total cost of credit as well as additional disclosure requirements around the cost of a mortgage.
“We would,” he says “support any measures which will make it easier for consumers to select the best mortgage deals — and we would point out too how valuable mortgage brokers offering market-based advice can be in this regard as they will be able to advise consumers on the best mortgage offers available to them based on their unique circumstances and requirements.”
The Central Bank research note also reveals that credit unions have begun to account for a small but growing share of mortgage switches. From a position of having been close to absent from the mortgage switching market up to late 2022, around 10% of mortgage switches were to credit unions by the end of 2023.
Kevin Johnson, CEO of the Credit Union Development Association (CUDA) says that
these figures are proof that credit unions have become and will continue to be a strong contender in the Irish mortgage market.
“Arising from legislative changes signed last February, in the last three months of this year, credit unions will be permitted to offer a service or product such as a home loan to a member of another credit union — under a formal arrangement with that other credit union. Those changes allow credit unions to refer mortgage applications to other credit unions should they not be in a position to provide a mortgage themselves — and this will be the first time that credit unions will be able to do so.”
This effectively means that every credit union in the country will be able to offer mortgages.
There has been phenomenal growth in credit union lending, and this has been driven by an increased appetite for credit union mortgages as well as the increased ability of credit unions to provide mortgages.
“The demand from members is clear,” says Mr Johnson, “they want an alternative to the banks and credit unions are stepping up…
Experienced credit unions in this space are evolving from niche players to full participants in the mortgage market.”
