Banks now required to tell mortgage holders how to save
Irish banks are now required to give mortgage customers more information about their loan in order to help them save money by moving to a better rate or switching provider.
This includes flagging in advance with borrowers when their fixed-rate term is coming to an end, and letting them know of better mortgage options that are available to them.
The requirements are part of changes to the Central Bank’s Consumer Protection Code on mortgages.
Head of Communications with price comparison website Bonkers.ie Daragh Cassidy said the changes are “good news for mortgage holders” and it will be much easier for them to switch provider in future.
“The mortgage-switching process is going to be more streamlined and standardised and also it’s going to improve the level of communications between banks and customers.
“There will be an onus on banks to let customers know if they can get a better rate with the bank, because quite often when we ask people why they don’t switch mortgage, one of the reasons is that it’s too complex.
“Also, customers just don’t know that they actually could save money, so these changes will help to address that.”
However, Mr Cassidy points out that banks will not be required to tell customers of better rates available at competitor banks.
Lenders are now required to let customers know at least 60 days in advance that they’re about to come off a fixed interest rate and to provide details of the new rate that’ll apply from the expiry date.
Banks will also have to provide mortgage holders with information on other possible options that may be available to them.
For consumers on a variable rate mortgage (other than a tracker rate), lenders are now also required to notify mortgage holders every year as to whether they could get a cheaper interest rate as a result of a change in their loan-to-value ratio.
Mr Cassidy says significant savings can be made if consumers switch their mortgage providers.
“Your mortgage is likely to be one of the largest household bills that you’ll ever have so the amount that you can save by switching is quite large.
“If someone had let’s say a €250,000 mortgage … if they were paying 4.3% at the moment, which is quite a standard rate, and they were to switch to the lowest interest that’s on offer at the moment, they’d save €250 a month.”
The changes, originally announced in June, follow research by the Central Bank back in 2015 which found over one fifth of borrowers could save money by switching their mortgage, yet few do so.
The updated Consumer Protection Code seems to be largely designed to encourage more of us to switch our mortgage provider – something we are traditionally very bad at doing.
According to the Bonkers.ie Head of Communications, “the level of mortgage switching is chronically low at the moment, it’s less than 1%.
“Around 400-500 people switch mortgage provider every month, that’s well below where it should be.
“Given that mortgages are more complex financial products, we’re never going to see the level of mortgage switching that we do see for example in gas or electricity, but certainly it should be far higher than it is.”
On whether there is a rule of thumb as to how often mortgage holders should be looking at switching in order to save the most, Daragh Cassidy says “if you look at a mortgage it’s going to last you for 20 or 30 years. It’s crazy to think that you wouldn’t switch at least once during that time period.”
He added switching does take a little bit of time and there are some upfront costs, but “if everyone was to switch mortgage at least once during the term of their mortgage, they would be doing well”.
On the upfront costs to switch, Mr Cassidy says some lenders will give you money towards your legal fees or offer cashback on your mortgage, which can help to offset these costs.
The changes also introduce a required ten-day turnaround for a decision on a fully completed mortgage application and for the lender’s switching pack to include standardised, prescribed information.
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