Central bank runs rule over mortgages, rates and switching

The Central Bank of Ireland has begun research into mortgage interest rates, the types of home loan products available and the level of mortgage switching in the market. The move could ultimately assist borrowers in securing better value loans.

This has emerged in a letter from the Central Bank's Governor Philip Lane to Irish MEP Brian Hayes, who had raised concerns about mortgage switching and a lack of competition in home loans here.

Mr Lane said the research would focus on the pricing of mortgage interest rates, the types of products in the market and mortgage switching, adding that the results, where possible, would be made public.

He told Mr Hayes that this work was part of its “ongoing surveillance of the household financing landscape”.

It is understood that the Central Bank is considering a tender for an external party to assist in completing this research and analysis.

In a statement released to The Irish Times, the Central Bank said: "In order to further inform our work we have commenced some research in the area of mortgage switching, which we plan to complete by early 2017. The results will be used to consider whether any measures are required to be introduced in this area."

The bank said that “qualitative and quantitative research with consumers and industry” would be carried out as part of this research.

The Central Bank recently published measures that require lenders to provide borrowers with a summary of other mortgage products that could provide savings for the customer.

Helping customers

They must also provide a link to mortgage switching information on the website of the Competition and Consumer Protection Commission (CCPC). This information must be provided to borrowers with their annual mortgage statement.

While the CCPC has statutory responsibility for the development of competition policy, there are measures that the Central Bank can take to assist customers in switching mortgage providers and in deciding which home loan products are best suited to them.

Mr Lane noted that the Irish mortgage market is dominated by variable rate contracts, which accounted for 88 per cent of loans in the first quarter of this year.

However, he said recent trends have been towards fixed-rate products for new and existing customers. In the first quarter, 42 per cent of new residential mortgage loans were fixed rates.

“Exploring further the drivers of these dynamics is an important aspect of our ongoing work,” he said.

Mr Lane told Mr Hayes that the lack of new entrants into the Irish mortgage market reflected the “lasting impact” of the financial crisis in Europe. However, EU law now allows both lenders and mortgage intermediaries in other EEA member states to offer products in Ireland without any further authorisation from the Central Bank, he added.

The Irish regulator also introduced a new application process in March for retail credit firms, who are allowed to provide consumer lending without having to be a licensed bank.

This includes confirmation within 10 working days that an application includes the information needed to go forward for assessment, and the completion of that assessment within a further 90 working days, excluding time necessary to deal with queries.