Central Bank to force lenders to disclose cheaper mortgage rates

The Central Bank wants to save Irish homeowners thousands of euro by making banks spell out the savings borrowers could make by switching their mortgage to a cheaper rate. The regulator is also cracking down on cash-back incentives offered by Irish lenders by forcing them to remove as many as three in four promotional ads, which it says are not compliant with the consumer protection code.

Under the new rules, which will be binding from January 1st 2019, Irish lenders will be required to tell Irish mortgage holders how they can save money with them, or direct them to comparison tools which will show how much they might save with a competing lender.

Gráinne McEvoy, director of consumer protection, said that the new rules are focused on assisting consumers with lowering their mortgage repayments, where possible.

“While information to help consumers compare mortgage rates is widely available, including the CCPC’s online mortgage comparison tool, our research also shows that some of the reasons people don’t switch their mortgage is because they don’t realise how much money they could save and also find it difficult to compare mortgages. These changes are aimed at making it easier for consumers to obtain this key information so that they are able to easily identify whether they are able to make savings by switching their mortgage, and make the process quicker and easier to complete if they do decide to switch,” she said.

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While the new requirements will make it easier for borrowers to switch rates with their own borrowers, it’s understood that the Central Bank hopes this initiative will help stir an appetite among Irish borrowers to switch lenders also.

Despite the fact that switching mortgage provider can result in annual savings that can run into the thousands for the typical Irish household, many consumers are reluctant to switch. Last year a survey from the Central Bank found that more than 100,000 borrowers could save money by switching. And yet figures from the Banking & Payments Federation show that just 969 homeowners switched mortgage provider in the first quarter of this year, while there were just 3,000 switches in the whole of 2017.

And, given that Irish mortgage rates are still about 1.5 per cent more expensive than European norms, it might be expected that getting people to switch more often, could have a deflationary impact on rates.

Shaking up switchers

The new rules mean that from January 1st 2019, your lender must tell you about cheaper options 60 days before you come out of a fixed rate mortgage; they must tell you if you can switch to a cheaper mortgage based on how much equity is in your home, if they offer lower rates based on LTVs (loan to value); they must give you a comparison of how much your mortgage costs versus other options offered by your lender if you ask for one; and they must give you a decision within 10 days of your application.

The regulator also wants lenders to clearly explain the pros and cons of any mortgage incentives such as cashback offers. These offers have proliferated in recent years – PTSB for example offers 2 per cent back a month, while EBS offers 2 per cent of the value of your mortgage back. However, these can mask higher rates, and so the regulator is cracking down on the promotion of these products. Earlier this year it said it requested all lenders offering the incentives to cut as many as 75 per cent of their ads, because they weren’t compliant with the Consumer Protection code.