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Mortgage holders in Ireland could save more than € 10,000 by switching lender, but the vast majority choose not to switch, according to a new study.
The Central Bank investigation found that 61 percent of eligible mortgage holders could save more than 1,000 euros during the first year by switching providers, and more than 10,000 euros during the remaining term of the loan.
While there has been an increase in forex activity among homeowners, the report says, forex activity remains low relative to the outstanding group of eligible exchangers – just 2.9 percent in the second half of 2019.
The findings suggest that there is little appetite among eligible borrowers to commit to mortgage swap options in Ireland, he says. This is despite downward movements in interest rates and the recent introduction of policy initiatives designed to improve the process of change.
“A diverse range of factors can inhibit change, including psychological factors, lack of knowledge about costs and benefits, and perceived complexity,” he says.
The report on change activity in the Irish mortgage market highlights the potential savings available to mortgage holders and points out some of the reasons why people may not make the change.
It says that a large number of mortgage holders could see significant reductions in repayment costs when switching.
More than three out of five (62 percent) homeowners-owner-occupants who are eligible to switch could save more than € 1,000 within the first 12 months if they moved to secure the best rate available on the market.
Of those who are eligible to switch, 72 percent can save more than one-tenth of their annual repayment cost, while 61 percent could save more than € 10,000 over the remaining term of the mortgage.
The report notes that the potential savings from the switch vary by borrower type and age profile, with potential savings higher among younger borrowers and first-time buyers.
It finds that 81 percent of those who switch choose to take a fixed mortgage. The average interest rate paid by those who change is almost one percentage point lower than that of those who do not.
Barriers
The study also examines potential barriers to mortgage change, suggesting that lower levels of financial education and knowledge are likely to prevent many from changing the current configuration.
The high inhibition category includes a higher proportion of first-time borrowers and borrowers who took out mortgages during the peak years of the housing boom, he says.
In response to the report, Trevor Grant of the Irish Mortgage Advisers Association said: “There are not enough homeowners who review their mortgage offer in the recommended timeframe, which is roughly every two years.”
“Increased competition on rates in 2020 has meant that the Irish market is now ready to change,” he said.
“The bottom line for mortgage holders is that their bank would prefer that they not change, and while they can offer their customers the lowest rate, they are not required to specifically warn them that better terms are available elsewhere.
“So it is up to the Central Bank of Ireland and other consumer advocates, such as Mortgage Brokers, to spread the word,” he added.
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