Mortgage customers to benefit from new Central Bank rules

Banks will be required to notify customers of cheaper loan offers

Banks in Ireland will be required to inform their mortgage customers each year about alternative loan products that they could switch to and save money, under new rules being planned by the Central Bank of Ireland.

Lenders will also be required to publish more information around their policies for setting variable mortgage rates, under changes to the consumer protection code that are due to be announced by the regulator on Thursday.

These changes were outlined by Central Bank governor Philip Lane in a letter last week to Irish MEP Brian Hayes, who has been pushing for new rules to encourage higher levels of mortgage switching at a time when standard variable rates here are about 2 per cent higher than in other euro zone countries.

Mr Lane said the annual statement of account and notification of an interest rate change that is sent by a lender to their mortgage customers “must include a summary of other products provided by the regulated entity that may provide savings to the consumers and details of where further information can be obtained”.

This must include a link to the mortgage-switching section of the Competition and Consumer Protection Commission’s (CPCC) website.

In addition, a lender must prepare and publish on its website a “summary statement of its policy for setting each variable mortgage rate for a personal consumer”.

Switching impediments

And this statement must be provided to borrowers with their mortgage offer document, and affected consumers must be notified each time a change is made to the summary statement.

Mr Lane said these new measures should provide information to consumers at “important points during the term of their mortgage, will assist them in considering their options and switch if minded to do so”.

“While the provision of information to consumers at the right time may be one catalyst for switching, there may well be other impediments to switching and we are planning further work in the area,” he added.

“We are also examining the lessons from switching reforms in other jurisdictions (including Italy).”

Research from the Central Bank has shown that 21 per cent of borrowers could save money by switching, based on an analysis of more than 500,000 home loans.

It estimated that the cumulative available savings across all mortgages in the 12 months after switching would be €65 million.

A recent CCPC survey showed that one-in-seven Irish mortgage holders have thought about switching but only 2 per cent have actually moved in the past five years.

Figures from the Banking & Payments Federation Ireland show that 1,338 home loans were remortgaged last year to a value of €290 million.

This reflects customers switching from one provider to another.

Lack of competition

The changes to the consumer protection code follow a recent consultation process run by the regulator.

Mr Hayes has called for legislation to be introduced by the Government to provide for a “simple switching procedure”, similar to what exists in Italy. And he believes there is a need for the Central Bank to develop a “specific code of conduct on switching”.

"We must recognise that there is still a great lack of competition in the mortgage market," he told The Irish Times.

“Variable mortgage rates are still too high. We need to find ways to ensure that foreign banks can come into our mortgage market and compete with the current players.

“To develop that competition, I believe that switching must be a key component of our mortgage market. We currently have very low switching rates and this keeps the market less competitive.”

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times