Switching costs less as banks make it easy

One of the most striking themes to emerge from the mortgage market over the past year has been consumers' ability to switch lenders at a reasonable cost.

The idea is that borrowers should not be barred from accessing any mortgage in the market that takes their fancy at a given time. Historically, this was difficult, as lenders tended to shy away from competing with each other for existing customers.

The gloves are now off, with banks and building societies actively hunting down business that sits with their competitors.

This is good news for the consumer, especially when lenders offer special packages to make moving a mortgage easier.

Among the market leaders in this regard have been Ulster Bank and National Irish Bank (NIB) - both actively market themselves to switching customers. Ulster offers to cover the legal costs attached to switching a mortgage from one lender to another. This can be a lucrative offer, given that the legal side of the process can cost as much as €2,000. NIB offers to contribute up to €600 towards legal fees where the loan is worth €45,000 or more.

A number of other lenders use the services of First American Title Company, a firm that facilitates mortgage switching in a very short time frame. This service costs about €1,000, with the price covering all legal expenses and Vat.

Estimating the cost of switching is one side of the story. The borrower must still try to work out whether or not the move will be worth their while.

This can be a relatively easy process as long as the borrower has two key tools to hand: the mortgage rate table that accompanies this column and an online mortgage calculator. One useful calculator is at www.jeacle.ie/mortgage. Here the user can select the mortgage amount, the term and the interest rate that applies to them. Then they can establish roughly how much their mortgage will cost over the longer term at various rates.

It will not be an exact science but it should help to inject some clarity into what can be a confusing situation.

The other option will be for the borrower to ask the new lender to work out the sums on their behalf. Given that the bank or building society will be fighting for the mortgage business, they should jump at the opportunity to prove their worth.

On paper then, the whole process of switching looks very simple indeed, with lenders now practically offering a gilt-edged invitation to anybody wishing to make a move on to their books.

The only problem with this is that there must be two players in the switching game. In other words, the consumer needs to be just as enthusiastic as the bank or building society about moving their mortgage. And given that consumer lethargy permeates Irish society, this meeting of minds does not take place as often as it could.

For some reason, borrowers tend to be easily bored by the amount their mortgage costs them every month. They also tend to get turned off by financial matters that require some effort on their behalf.

But what if this effort extended no further than making a simple phone call? What if all you had to do to get a cheaper rate on your homeloan was to ring your lender and threaten to move your mortgage unless they match the best rate in the market?

You never know, it might just work. Give it a go and see.