Central Bank plans new rules to encourage mortgage switching

The Central Bank of Ireland plans to introduce a number of measures to make it easier for borrowers to switch their mortgages to another lender to reduce the cost of their loans.

This follows research that showed that just 4 per cent of borrowers had moved their home loans to a new lender while 6 per cent had changed their product with their existing bank. The survey found 81 per cent had not considered moving their mortgage for one reason or another.

Greater clarity

The Central Bank will propose that lenders provide greater clarity to consumers on the switching process, including information on timeframes and the potential costs of switching.

It will also explore the benefits of lenders having dedicated switching contact points, as well as introducing further disclosure rules at trigger points in the mortgage life cycle, such as at the end of a fixed-interest-rate term.

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In addition, it will look at the scope for increased co-operation among lenders during the switching process.

The Central Bank plans to publish a consultation paper in the third quarter of this year, proposing these measures to facilitate mortgage switching.

Some 44 per cent of all mortgage holders surveyed felt that the switching process was too complex, while 38 per cent who switched their mortgage reported that a reduction in the amount of paperwork and documentation required for the switching would improve the process.

Consumers also see mortgage switching as costly. Some 37 per cent who had switched their home loan with the same lender reported that there were additional processing fees they hadn’t expected.

One-in-three of those surveyed who considered switching but did not, reported that a lower-cost process would have encouraged them to move their loan.

Of those who switched their mortgage, 81 per cent agreed that they understood what was going on at each stage of the process while 27 per cent who switched lender reported no obstacles to moving their loan.

Guaranteed savings

Some 54 per cent of all mortgage holders surveyed said that they might switch if there was a long-term guarantee of an interest rate saving. This figure rose to 77 per cent among mortgage holders surveyed who considered switching but did not.

Of the mortgage holders surveyed who had never switched, 42 per cent said that lower interest rates would encourage them to move their loan.

Commenting on the research findings, the Central Bank's acting deputy governor Bernard Sheridan said: "The research shows that those borrowers who switched their mortgage had a positive experience. It is also clear that lenders could be doing more to facilitate consumers who are thinking about switching, be that switching to another lender or to another mortgage product with the same lender.

“Lenders need, therefore, to examine these findings carefully. The Central Bank will progress its work in this area by publishing a consultation paper later this year which will set out proposed measures to help any consumer who is considering switching”.

The Central Bank’s findings were based on research carried out by Behaviour and Attitudes. This consisted of six focus groups and a quantitative survey of 2,003 mortgage holders. It was undertaken in November and December 2016.

Research from the Central Bank in 2015 had shown that 21 per cent of borrowers had the potential to make savings by switching their mortgages. According to the European Commission, 3.3 per cent of Irish consumers switched their mortgage in 2014.