We are not a nation of switchers. In fact we seem to actively hate going in search of the best value for money and far, far too many people are perfectly happy – or at least willing – to waste hundreds if not thousands of euro every single year because of a wildly misplaced sense of loyalty or laziness or confusion or fear.
Or maybe it is a combination of all four.
As many as one in seven people have never changed their energy or gas provider even though by doing so a person could easily see their annual bills fall by close to €500.
A similar percentage of us have stuck with our health insurance company for donkey’s years despite paying hundreds of euro more each year than is strictly necessary.
The numbers seeking better value by moving their mortgage from one provider to another are even smaller again despite the even bigger savings on the table for the canny few who take action.
There are more than 700,000 mortgages on the books of Ireland’s banks but, the number of people who moved their home loan from one company to another in the past year could easily fit into the 3Arena with a lot of room to spare.
And how much could people save? The short answer is loads.
A Central Bank review of mortgage-switching activity found that 61 per cent of eligible switchers could save over €10,000 but that 13 per cent stood to gain over €30,000 by taking their business elsewhere.
The savings could be even more than that, mind you.
Earlier this week, it emerged that the highest mortgage rate in the Irish market is now double the lowest, ranging from 3.45 per cent to over 7 per cent.
The divergence is as a result of recent rate cuts leading to huge potential savings for smart homeowners who switch lenders.
The Mortgage Switching Index published by brokers doddl.ie found that some homeowners could be paying up to €7,812 more than they need to every single year by sticking with their current lender – an increase from €3,587 a year ago.
The index is based on the average new mortgage drawn down in the last quarter of €309,502 and a highest roll out variable rate of 7.15 per cent versus the lowest standard rate on the market – currently 3.6 per cent.
This has resulted in a record 42 per cent gap between 25-year monthly repayments of €1,566 on the lowest rate and some householders on €2,217 at the highest end of the scale.
Those who are eligible for Green rates can save an additional €300 per annum with the lowest on the market now starting from 3.45 per cent a potential saving of €8,113 every year.
“No one wants to pay more than they need to on their mortgage and so the question of further rate decreases is a very relevant one,” says the managing director of doddl.ie Martina Hennessy.
“Most mortgage holders do not want to speculate when it comes to their mortgage, they like to lock in certainty,” she adds.
“Recent rate decreases have brought us competitive rates at sub-3.5 per cent. While these are not at the sub 2 per cent level of 2022 it would take extraordinary economic circumstances to see them fall back to similar levels. For those holding out for their current lender to drop rates, I would suggest that they review the market for the best rate they can achieve now.
“Don’t just accept the rate your current lender has to offer, if it makes sense to switch, then act now.”
The perceived barriers to switching mortgage have reduced with five lenders now offering switcher incentive packages and reduced document requirements for switcher applicants.
Cashback offers range from €1,500 right up to 2 per cent of your mortgage back in cash. The lowest rate on the market is now available with a €3,000 cash offer.
But with savings like that on the table why aren’t more people with decent LTVs making the switch?
Several years ago, a unit of the Economic and Social Research Institute (ESRI) gave itself the task of finding at least part of the answer.
The study showed that when a single additional factor, alongside price, is used to describe two comparable products, consumers struggle to identify which is the best value for money.
And if four factors are used in a product’s description – interest rate, term of loan, bank opening hours and cash back, for example – as well as the price, people have virtually no chance of being able to work out accurately which is the best value.
The study also revealed systematic biases in consumers’ choices, with most people assuming high-end products are better than cheaper ones, even when the available evidence makes it clear the dearer options are overpriced.
There is also an understandable fear of making a mistake when choosing between products. That fear is important because it can stop people making the wrong choices but it can also stop people making the right choices.
When it comes to mortgages there are other factors at stake. Some people are trapped and forced to pay outrageously high rates by so-called vulture funds. Others have poor credit ratings and would struggle to switch lenders. And then there are tracker holders coming to the end of their terms and willing to ride the ECB rollercoaster.
Many borrowers are afraid to switch their mortgage or even query a better rate with their own provider for fear it will impact their current position or home. They are also concerned they will have to jump through all manner of hoops just as they did when the first bought their home.
Neither one of these things is true.
When you are a mortgage holder, you are in control and can decide if you want to switch. That decision will not put your home at risk. Switching is nothing more than a transaction to move from one lender to another to save a few bob – or a lot of bobs.
The first step is to make a few inquiries to see what might work for you. Then you need to find out what documentation you need – bank statements, pay slips etc. Getting them together might take a week but if that week’s work saves you five grand, it’ll be definitely be worth doing.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
