Homeowners missing out by not switching mortgages, brokers say

Tens of thousands of homeowners are paying hundreds, if not thousands, of euro more on their mortgages than they need to every year, according to industry sources.

Mortgage brokers say more than 80 per cent of those on standard variable rate home loans are likely to be significantly overpaying but people remain slow to switch to a better product or provider.

Mortgage rates have dropped in the past two years for new mortgages and banks have also become increasingly competitive on fixed rates, the Association of Irish Mortgage Advisors (AIMA) says.

But even though the numbers switching mortgage rates or providers has more than trebled in the past four years, the volume of mortgage-switching is still only one-quarter of what it was at the peak of the boom, AIMA says. It says homeowners should review their rate and mortgage agreement every two years to ensure they are getting the best value.

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"In the last two years, just over 10,000 mortgage holders switched out of a possible 150,000-200,000," says Trevor Grant, chairman of the brokers' group. "That figure is far too low: ideally 30,000 SVR homeowners need to switch each year."

Cheaper products

And he says banks would be more likely to lower their rates to protect their market share if a greater number of people moved to switch to competitors’ cheaper products.

“The volume of outstanding standard variable rate mortgages at the end of September 2019 was €20.3 million,” siad Mr Grant. “This is a sizeable portion of our mortgage market.

“We believe that fewer than one in five of these households are on the best available rate and therefore the majority could save by switching. In addition, if more people switched, the banks would be more likely to lower their rates to protect their market share – this is simple economics.

Switching is not as complicated as it can sound, although it does involve legal fees.

The Central Bank has imposed timelines on lenders to process applications. In addition, the paperwork and the legal fees involved are less than would be the case with original loan applications for a property purchase.

Legal fees

And most lenders now offer some form of contribution towards the cost – either by way of a cashback offer to tempt the business or a straight payment to cover legal fees.

The brokers say that it is not just those borrowers with low loan to value (LTV) rations who can benefit. It says that cases involving its members over the final few weeks of 2019 show significant savings are possible even for those borrowers whose LTV is between 80 per cent and 90 per cent.

He gives the example of a couple who borrowed €300,000 over 30 years just three years ago and are now paying an interest rate of 3.5 per cent, with an outstanding balance of €288,820.

Assuming that is less that 80 per cent of the current value of the property, the homeowners could move to a variable rate of 2.95 per cent and save €85.58 a month, or €1,027 a year. That would deliver estimated savings over the course of the loan of €28,755 if rates did not change further.

Alternately, they could move to a fixed rate of 2.6 per cent for three years and save €138.40 a month, or over €1,208 a year, with potential savings of almost €32,160 over the full life of the loan, AIMA said.

“Many people got the best deal available at the time when they took out their mortgage and they understandably assume it is still the best,” Mr Grant said. “However, the reality is that it’s probably out of date by now.