Switching craze hits the market

In an ideal world, as well as being beautiful and smart, all of us would be extremely adept in seeking out the best deal on any financial product.

This would mean we could effortlessly cut through all the red tape and small print and, crucially, be in a position to compare the benefits of a particular bank account, credit card or mortgage.

Alas, this ideal world does not exist and, as well as most of us being average in the beauty and intelligence stakes, we are lazy when shopping around for anything to do with finance.

Mortgages are a particular case in point, with most homebuyers so delighted to be given mortgage approval in the first place that the thought of moving lender half-way through the loan to get a better rate appears almost ridiculous - at least until they realise that they could reap substantial savings by forgetting about being loyal to their current mortgage provider.

Happily, there are signs in the market that this money-saving attitude could be catching on, with the shift being led by both borrowers and lenders.

On the lending side, the star of the mortgage-moving show is Ulster Bank, which recently upped the ante on other institutions by launching a reasonably-priced switching service.

Ms Sarah Wellband of mortgage broker REA says this "switcher" package, which covers almost all the costs of transferring a mortgage from lender to lender, has sparked a wave of new interest in the area over the past few weeks.

This product works on a fairly simple basis, whereby Ulster will pay for switching costs, such as solicitor fees and valuation charges (in most cases), in return for the pleasure of attracting a new mortgage customer.

Mortgage-holders pay the stamp duty on the mortgage deed if the loan is higher than €254,000 at a rate of 0.1 per cent of the loan amount but, with at least one broker offering to pay this particular charge for the client, the whole package looks fairly appealing. And, given that it stands out among comparable offerings from peers at the moment, it would not be a surprise to see other lenders raising their "switching" profile over the next few months.

Ms Wellband believes this force for change will be particularly relevant for existing mortgage-holders who want to switch out of their current homeloan into another, cheaper product offered by the same lender.

"I think lenders will have to allow existing customers switch internally to avail of better interest rates," she says. "However, there is still a great deal of complacency amongst borrowers - they don't look at the long-term savings they can make and wrongly think that a straight swap remortgage will be time-consuming. A mortgage is like any other service or product - you have to review it periodically to ensure you are getting the best value."

Looking at the market, Ms Wellband says the benefits of switching will probably be greatest for those borrowers on a standard variable rate who are close to the start of the mortgage term.

"They should definitely consider switching to a tracker mortgage - either with their existing lender, or to the most competitive alternative lender. The benefits will outweigh the costs over time, and on larger mortgages this will be sooner as the cost of switching is circa €1,100 regardless of loan size."

Switching will, on the other hand, hold least appeal for those borrowers who are locked into fixed-rate loans and would have to pay a break fee of a few thousand euros to exit.

"If a borrower is on a fixed rate of interest the penalty charged for breaking the fixed rate will often negate the benefits, so they should wait until the fixed term has expired before switching," she warns.

The other option that has always been open to borrowers is to drive a harder bargain with their current mortgage provider. Banks and building societies do not like to admit it, but there is always a chance that they will offer a better package to customers threatening to take their business elsewhere.