Get switching: new rules to make it (a little bit) easier to switch mortgage
Changes aimed at helping consumers switch their mortgage came into effect on January 1st
Changes to the Consumer Protection Code came into effect yesterday.
Borrowers will soon be encouraged to lock-in to lower mortgage rates as banks start to implement new Central Bank rules aimed at helping consumers make savings on their mortgage repayment and facilitate mortgage switching.
The changes to the Consumer Protection Code, which were first announced last June, came into effect yesterday, and it is hoped that the greater transparency that they will bring will result in a greater number of Irish borrowers seek out and avail of lower borrowing rates on their home loans.
And there are considerable savings to be made. According to Bonkers.ie for example, someone on a mortgage of € 250,000, at a rate of 4.3 per cent could save over €250 a month, or over €3,000 a year, by switching to the cheapest rate on the market. However research conducted by the Central Bank back in 2015, found that while about a fifth of borrowers could save money by switching, Irish consumers remained reluctant to do so.
Daragh Cassidy, head of communications at bonkers.ie said: “Although increasing, the level of switching in the Irish mortgage market remains chronically low at less than 1 per cent. So anything which facilitates switching is to be hugely welcomed.”
Lenders now have to follow new guidelines when communicating with borrowers. If you’re on a fixed rate for example, lenders will now have to tell you, at least 60 days in advance, that this rate will shortly expire, and what the best options available to you are. If you’re on a variable rate (other than a tracker), lenders are obliged to tell you every year whether or not you can switch to a lower rate due to a change in your loan-to-value (LTV) valuation. This arises when the gap between the house price and the outstanding loan widens, thus pushing a borrower into a lower LTV category, for example, moving from above 80 per cent ot below 80 per cent. Lenders often offer lower rates to those with lower LTVs.
The changes also introduce a required 10-day turnaround for a decision on a fully completed mortgage application and for the lender’s switching pack to include standardised, prescribed information.
Mr Cassidy said that the changes should help consumers realise the savings involved in switching.
“Quite often we find that customers don’t bother trying to switch mortgage as they feel the process is too cumbersome and because they don’t realise the potential savings involved. These changes to the Consumer Protection Code should help to address that,” he said.
Mortgage rates have become increasingly competitive in recent years, although still remain considerably higher than Euro zone norms. Ulster Bank for example, now offers a rate on a two-year fixed rate of as low as 2.3 per cent, compared with a high of 4.5 per cent from Bank of Ireland on its variable rate.