We should have a switcher code for mortgages
- Thread starter Sarenco
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Brendan Burgess
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What would a switcher code achieve?
The objective of such a Code would be to make it easier and faster for borrowers to refinance home loans with other lenders.
The Central Bank already has a Code in place to assist depositors to switch current accounts - it should be possible to construct something similar for home loans products.
The Code could, for example, require incumbent lenders to share repayment information and other details with refinancing lenders within specific time limits at the request of borrower(s), require the release of title documents within specific time limits, standardise transfer documents, address direct debt mandates, etc. Essentially anything sensible that eases and speeds up the refinancing process.
Hopefully such a Code would make it more difficult for banks to rely on customer inertia as a business model and would help to increase competition within the mortgage market.
It would certainly make it less obviously advantageous for a bank to prefer new customers over existing customers.
Brendan Burgess
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Hi Sarenco
Many people talk about this - most recently Brian Hayes.
But it's a distraction.
I have searched on askaboutmoney for a single post where someone was discouraged from switching by their existing lender's behaviour.
All of the issues are at the new lender's end. They require so much documentation that it deters people.
From the incumbent lender, it's actually very easy. The borrower's solicitor requests the title deeds and usually get them by return. The next thing they know is that the borrower has paid off the mortgage with a cheque from the new lender. They really have nothing else to do.
The only way to encourage switching is for some bank to offer significantly reduced mortgage rates. We had plenty of switching when Bank of Scotland came into the Irish market because it was worth switching.
Brendan
Many people talk about this - most recently Brian Hayes.
But it's a distraction.
I have searched on askaboutmoney for a single post where someone was discouraged from switching by their existing lender's behaviour.
All of the issues are at the new lender's end. They require so much documentation that it deters people.
From the incumbent lender, it's actually very easy. The borrower's solicitor requests the title deeds and usually get them by return. The next thing they know is that the borrower has paid off the mortgage with a cheque from the new lender. They really have nothing else to do.
The only way to encourage switching is for some bank to offer significantly reduced mortgage rates. We had plenty of switching when Bank of Scotland came into the Irish market because it was worth switching.
Brendan
Hi Brendan
Absolutely accept that the major cause of delay and hassle is getting through the new lender's underwriting process and a switcher code will have a minimal impact on this process. However, if a code allowed a new lender to access account details at other institutions, with the express consent of a borrower, that should surely speed up the underwriting process.
GNF reported a delay caused by the incumbent bank in this case study:
http://www.askaboutmoney.com/threads/my-experience-switching-from-boi-to-kbc.194863/
If you look at the recent IBF data you can see that the numbers switching lenders has increased quite dramatically over the last 12 months. Any proposal that could assist this process surely should be supported.
I'm not pretending that introducing a switcher code would solve all challenges associated with switching but I think it's unfair to describe such a proposal as a distraction.
Absolutely accept that the major cause of delay and hassle is getting through the new lender's underwriting process and a switcher code will have a minimal impact on this process. However, if a code allowed a new lender to access account details at other institutions, with the express consent of a borrower, that should surely speed up the underwriting process.
GNF reported a delay caused by the incumbent bank in this case study:
http://www.askaboutmoney.com/threads/my-experience-switching-from-boi-to-kbc.194863/
If you look at the recent IBF data you can see that the numbers switching lenders has increased quite dramatically over the last 12 months. Any proposal that could assist this process surely should be supported.
I'm not pretending that introducing a switcher code would solve all challenges associated with switching but I think it's unfair to describe such a proposal as a distraction.
Brendan Burgess
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"Title Deeds requested from BOI, but not provided on first attempt. This has to be re-requested and delays process by 10 days."
OK, this should not have happened. But it's the type of admin error that does happen. A code would make no difference. Mistakes will still happen.
Of course, but a switching code will not assist the process.
Sorry, but it's a complete distraction. If the CB introduces such a code, they will claim to have done something to help borrowers. But they continue to mislead the public over the true rates being charged and they drag their heels over the approval of competitors.
The Central Bank should take real action to make sure that the cuts in the ECB rates and funding costs should be passed onto customers. They should not get distracted by things which simply will not make any difference.
Brendan
I mentioned this in one of the other threads - there should be a code for authorised exchange of information between banks for all products. I'm switching at the moment and it has take over 6 months of toing and froing. I would have been happy to authorise the new lender to access all my account information in all my other banks to save me having to repeatedly produce wads of paper, sort of like a credit check. I give my existing banks a list of account numbers and give them permission to provide (electronically) statements directly to the new lender - surely this is possible?
I think we will have to agree to disagree on this one.
Most solicitors will tell you that taking up title deeds in these circumstances is a common cause of delay so a protocol in this regard around timing would be helpful.
More importantly, a protocol around the exchange of information, to address the issue raised by shweeney, would be a real advance from a customer perspective. It would take a lot of the hassle out of the process and would result in a significant time saving for all concerned.
I have no idea whether the Central Bank are dragging their heels on the approval of any new entrants to the mortgage market. Nor, frankly, do you.
There was a detailed article in the Central Bank's most recent quarterly bulletin on their presentation of lending statistics that you might find interesting.
This should not be an issue which holds up any switch. Standard requirement is 6 months current account statements and up to date loan statements. This should not take any time to produce nor involve "wads of paper"!
Process you describe is likely to take longer because neither bank will prioritise these actions. Bank staff are not going to chase around various banks seeking statements!
In theory maybe but in practice definitely not. Speed of action depends on the professionalism of specific staff in the security sections of each bank. Some are good. Some not so good. No protocol will change this.
newirishman
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To avoid that I instructed my solicitor to get the deeds from my current lender way in advance of starting the switching process. It meant that the deeds were gathering dust at the solicitors office for a few months but at least he had enough time to look through them and there was no delays caused by the deeds not being available when needed.
Apparently the Italians introduced a mortgage switching protocol on a legislative basis in 2015:-
https://brianhayesdublin.wordpress.com/2016/04/26/italy-leads-the-way-for-switching-mortgages-hayes/
Needless to say, mortgage rates are much lower in Italy.
Michael McGrath also thinks the introduction of a mortgage switching code on a statutory basis is essential:-
https://www.fiannafail.ie/a-statutory-code-of-conduct-on-mortgage-switching-now-essential-mcgrath/
One problem is that hard-copy statements go stale very quickly. It would be a lot more straightforward if lenders could access borrowers' account information with other institutions electronically (with the express consent of the borrower, obviously).
It would if the Central Bank had the power to administer sanctions for a contravention of the code (which is the case with the code of conduct on the switching of current accounts).
https://brianhayesdublin.wordpress.com/2016/04/26/italy-leads-the-way-for-switching-mortgages-hayes/
Needless to say, mortgage rates are much lower in Italy.
Michael McGrath also thinks the introduction of a mortgage switching code on a statutory basis is essential:-
https://www.fiannafail.ie/a-statutory-code-of-conduct-on-mortgage-switching-now-essential-mcgrath/
One problem is that hard-copy statements go stale very quickly. It would be a lot more straightforward if lenders could access borrowers' account information with other institutions electronically (with the express consent of the borrower, obviously).
It would if the Central Bank had the power to administer sanctions for a contravention of the code (which is the case with the code of conduct on the switching of current accounts).
When I read this title I thought we could do something to eleviate the legal part of switch, making it easier and cheaper for the switcher. I accept that things can change slightly but surely if the first solicitor did the job right it should be allowed to not have to do further title checks and any other checks your solicitor does. Note: I have no idea of the requirements/time a solicitor has to do/put in here. If you pay 2k the first time should it not be a lot cheaper to switch a few years down the road ?
If you use the same solicitor for the switch that originally acted on the purchase of the property there should certainly be a cost saving in terms of legal fees.
I think it's interesting that apparently Italian borrowers have a statutory right to switch lenders within a 30 day window at zero cost to the borrower (no valuation fees, tax, bank fees or legal/notary costs) and the relevant lenders are required to share information with each other.
Apparently 32% of Italian mortgages in 2015 were generated by customers switching provider.
That sort of switching regime really would drive competition in a mortgage market and would act as a significant disincentive to lenders treating existing customers less favourably than new customers.
Incidentally, Fiona Reddin had a good article on the benefits of switching mortgage provider in today's Irish Times:-
http://www.irishtimes.com/business/...er-100-a-month-switch-your-mortgage-1.2640908
I think it's interesting that apparently Italian borrowers have a statutory right to switch lenders within a 30 day window at zero cost to the borrower (no valuation fees, tax, bank fees or legal/notary costs) and the relevant lenders are required to share information with each other.
Apparently 32% of Italian mortgages in 2015 were generated by customers switching provider.
That sort of switching regime really would drive competition in a mortgage market and would act as a significant disincentive to lenders treating existing customers less favourably than new customers.
Incidentally, Fiona Reddin had a good article on the benefits of switching mortgage provider in today's Irish Times:-
http://www.irishtimes.com/business/...er-100-a-month-switch-your-mortgage-1.2640908
Brendan Burgess
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But there is no point in bringing in an expensive Code which would achieve very little.
Fine, in the rare cases where a lender takes more than 5 working days to give the deeds to a solicitor, then the Central Bank can take enforcement action against them. That will not increase switching.
Almost all the delays come from the documents required by the new lender.
A code could specify that the old lender has an obligation to send mortgage statements electronically to the new lender. But what would this achieve? I have my mortgage statements on file. Some people probably don't keep them, but how long does it take to get them?
It's better to focus on the barriers to switching and not get distracted. And the big barrier is the fact that all banks are expensive. If a new lender starts charging fair rates for low LTV mortgages, there would be plenty of switching.
We didn't need a switching code back in 2006. It was well worth switching and lots of people did it.
Brendan
Fine, in the rare cases where a lender takes more than 5 working days to give the deeds to a solicitor, then the Central Bank can take enforcement action against them. That will not increase switching.
Almost all the delays come from the documents required by the new lender.
A code could specify that the old lender has an obligation to send mortgage statements electronically to the new lender. But what would this achieve? I have my mortgage statements on file. Some people probably don't keep them, but how long does it take to get them?
It's better to focus on the barriers to switching and not get distracted. And the big barrier is the fact that all banks are expensive. If a new lender starts charging fair rates for low LTV mortgages, there would be plenty of switching.
We didn't need a switching code back in 2006. It was well worth switching and lots of people did it.
Brendan
Expensive for whom?
The Italian regime is apparently cost-free for borrowers and most Irish lenders already offer incentives to switchers that more than cover the cost of switching. There is no reason why a switching code should not be cost neutral for all concerned.
Agreed but wouldn't it be fantastic if lenders could access this information centrally rather than requiring borrowers to schelp around town (usually more than once) to gather this documentation?
Chicken and egg.
The ease with which borrowers can refinance their loans will drive competition in any credit market. Increased levels of switching will drive competition and will, in time, result in lower mortgage rates overall. Basic market economics.
Switching increased by 128%, year-on-year, over the last 12 months on a volume basis. People are already voting with their feet - a statutory mortgage switching code could only help this positive development in our mortgage market.
Fundamentally, I disagree that the Central Bank (or any other State agency) should fix the cost of credit. Fortunately, the Governor of the Central Bank agrees so formulating a switching code for mortgages won't distract staff from any price fixing exercise.
Ultimately competition, not price fixing, will drive down mortgage rates.
gnf_ireland
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I happen to agree that a switching code may encourage people to switch and reduce the level of inertia around the whole process. If the banks can do 70% of the leg-work easily, it has to make a difference here. If all the customer has to do is go into the bank, sign a form allowing them to access the information and then go back a month later to find out what remaining details need to be done. This could also include the revenue for LPT and income details also.
I do believe there are a reasonable number of people out there who would switch but simply don't have time due to work/family commitments and simply cannot prioritise the activity. It is the only reason I can think of as to why more of the people who bought in 2010-2013 have not switched at this stage.
Anything that makes it easier, and encourages switching, should be promoted in my view
*On a personal note, I mentioned to my wife we will probably switch again before the year end and she threw her eyes to the sky and said hope you enjoy the 3 months of paperwork involved.*
I do believe there are a reasonable number of people out there who would switch but simply don't have time due to work/family commitments and simply cannot prioritise the activity. It is the only reason I can think of as to why more of the people who bought in 2010-2013 have not switched at this stage.
Anything that makes it easier, and encourages switching, should be promoted in my view
*On a personal note, I mentioned to my wife we will probably switch again before the year end and she threw her eyes to the sky and said hope you enjoy the 3 months of paperwork involved.*
Brendan Burgess
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Hi gnf, you documented your switching process brilliantly in this post.
Let's look at the steps and see which of them would be helped by a switching code
1) mid December 2015 - you first contacted KBC to talk about switching- a switching code would not help
2) 5/1/2015 You became aware that Bank of Ireland were overcharging you and decided to look around. A switching code won't help
3) You realised that you were paying over the odds - a switching code won't help
4) You rang BoI and Premier banking to discuss your rate A switching code wont' help.
5) You are self-employed - a switching code won't help unless it covers your accountant as well.
6) You checked out the rates - a switching code won't help
7) You had got married since you took out the mortgage and had to apply in both names - a switching code won't help.
8) You had to get your wife's financial details - Not sure if a switching code would help here
9) KBC queried 6 transactions over €1,000. I presume you would prefer KBC to be asking you about these rather than asking your bank. A switching code won't help.
10) KBC requires originals of certain financial statements - A switching code won't help
11) KBC requires letters from companies which you were a director of saying you had no financial liabilities or personal guarantees - a switching code won't help.
12) A one month hold up on KBC side appears to be due to their difficulty in working out who your employer was - a switching code won't help
13) "Title deeds requested from BoI but not provide on first attempt. Delayed process by 10 days". Bingo - a switching code might impose a 5 day response time. However, your solicitor could have avoided this by requesting the title deeds a month earlier. And switching codes won't eliminate human error.
14) Solicitor discovers that title deeds are in your name only and must be in joint names - a switcher code won't help
15) "Request KBC to clarify position, which they do by email. However takes another 4 weeks for them to issue this clarification in writing to the solicitor- despite a number of requests."
Finally "Once clarified, the process is very quick and draw down scheduled for 1st May. Issue with SEPA holiday so ends up being pushed out to 5th May. The cutover was straight forward enough. BOI closed mortgage account and did not attempt any further payments. KBC did pay the original requested amount (balance on January 1st rather than May 1st), but solicitor rebated this to them immediately so a non-issue."
From my reading of this a switching code would have potentially helped on stage 13) only. However, this is not an issue for most switchers - they request the deeds and they get them promptly.
BoI delayed you by 10 days. But it took around 120 days.
I will say it once more. The problems in switching are the credit requirements of the new mortgage lender. A switching code will not speed up the process by a material amount.
Let's be absolutely clear about this. I have campaigned hard to get mortgage rates reduced to fair levels. I have encouraged people to switch. I have highlighted the best buys so that people can see which is the best lender to switch to.
If I thought that a switching code would help, I would be drafting it. But it won't help at all. And the government and the Central Bank will claim "Look we have done something for borrowers.". I don't want them to have an excuse for doing nothing.
Let's look at the steps and see which of them would be helped by a switching code
1) mid December 2015 - you first contacted KBC to talk about switching- a switching code would not help
2) 5/1/2015 You became aware that Bank of Ireland were overcharging you and decided to look around. A switching code won't help
3) You realised that you were paying over the odds - a switching code won't help
4) You rang BoI and Premier banking to discuss your rate A switching code wont' help.
5) You are self-employed - a switching code won't help unless it covers your accountant as well.
6) You checked out the rates - a switching code won't help
7) You had got married since you took out the mortgage and had to apply in both names - a switching code won't help.
8) You had to get your wife's financial details - Not sure if a switching code would help here
9) KBC queried 6 transactions over €1,000. I presume you would prefer KBC to be asking you about these rather than asking your bank. A switching code won't help.
10) KBC requires originals of certain financial statements - A switching code won't help
11) KBC requires letters from companies which you were a director of saying you had no financial liabilities or personal guarantees - a switching code won't help.
12) A one month hold up on KBC side appears to be due to their difficulty in working out who your employer was - a switching code won't help
13) "Title deeds requested from BoI but not provide on first attempt. Delayed process by 10 days". Bingo - a switching code might impose a 5 day response time. However, your solicitor could have avoided this by requesting the title deeds a month earlier. And switching codes won't eliminate human error.
14) Solicitor discovers that title deeds are in your name only and must be in joint names - a switcher code won't help
15) "Request KBC to clarify position, which they do by email. However takes another 4 weeks for them to issue this clarification in writing to the solicitor- despite a number of requests."
Finally "Once clarified, the process is very quick and draw down scheduled for 1st May. Issue with SEPA holiday so ends up being pushed out to 5th May. The cutover was straight forward enough. BOI closed mortgage account and did not attempt any further payments. KBC did pay the original requested amount (balance on January 1st rather than May 1st), but solicitor rebated this to them immediately so a non-issue."
From my reading of this a switching code would have potentially helped on stage 13) only. However, this is not an issue for most switchers - they request the deeds and they get them promptly.
BoI delayed you by 10 days. But it took around 120 days.
I will say it once more. The problems in switching are the credit requirements of the new mortgage lender. A switching code will not speed up the process by a material amount.
Let's be absolutely clear about this. I have campaigned hard to get mortgage rates reduced to fair levels. I have encouraged people to switch. I have highlighted the best buys so that people can see which is the best lender to switch to.
If I thought that a switching code would help, I would be drafting it. But it won't help at all. And the government and the Central Bank will claim "Look we have done something for borrowers.". I don't want them to have an excuse for doing nothing.
Brendan Burgess
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Now let's look at the documentation required by a PAYE employee. Where would a Code help?
1) Application form for new mortgage
2) Latest P 60
3) 6 months' payslips
4) Completed employee status forms
5) 2 ID forms
6) Statement from existing mortgage lender
7) Statements from other lenders - e.g. credit unions
8) Evidence of savings - bank deposit book
The only areas where a Switching code would apply would be 6) 7) and 8). But these do not delay the process. A lot of people would have these to hand. And they can be got from the lender fairly easily and quickly if you don't keep them.
If we had a switching code, you would need to get the account details in 6) to 8) and give them to your lender. Your lender would then request the information from the banks. This gives rise to delays. It's much quicker to open your lever arch file, and copy the statements and deliver them to the new bank.
1) Application form for new mortgage
2) Latest P 60
3) 6 months' payslips
4) Completed employee status forms
5) 2 ID forms
6) Statement from existing mortgage lender
7) Statements from other lenders - e.g. credit unions
8) Evidence of savings - bank deposit book
The only areas where a Switching code would apply would be 6) 7) and 8). But these do not delay the process. A lot of people would have these to hand. And they can be got from the lender fairly easily and quickly if you don't keep them.
If we had a switching code, you would need to get the account details in 6) to 8) and give them to your lender. Your lender would then request the information from the banks. This gives rise to delays. It's much quicker to open your lever arch file, and copy the statements and deliver them to the new bank.
Brendan Burgess
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DMcL's experience of switching current accounts using the code is instructiv. That was in 2012, so things might have improved since.
Key Post A checklist for switching bank accounts
"Sounds great doesn’t it. However it doesn’t really work that way. I have switched accounts three times in the last five years and so far it has never gone according to plan. The reason is that there is a great deal of manual work undertaken by both banks and all communication between those banks and also with your DD originators is done by post, which adds extra delays. It is actually far easier, in my opinion, to chose not to use their switching service at all and instead do it manually yourself. What tends to actually happen, in the real world, is that UB might get delayed setting up your new account because they are so busy at the moment this then cause them to miss your nominated switching date, so, they wait until the same day the following month instead. (great your 4 weeks behind already) Then NIB, who are in no rush to lose you, don’t get around to shutting your account down until about a week after they were supposed to. Then they forget to send letters to half your DD originators. So, the next thing you know, you are being rung by ESB and Vodafone and everyone else complaining that your DD’s have bounced. You have missed your mortgage repayment and you start freaking out that your credit rating is going to be damaged.
So, to avoid all those hassles, I would recommend you do not use their switching service and instead you do it manually, and it is a lot easier than it sounds."
Key Post A checklist for switching bank accounts
"Sounds great doesn’t it. However it doesn’t really work that way. I have switched accounts three times in the last five years and so far it has never gone according to plan. The reason is that there is a great deal of manual work undertaken by both banks and all communication between those banks and also with your DD originators is done by post, which adds extra delays. It is actually far easier, in my opinion, to chose not to use their switching service at all and instead do it manually yourself. What tends to actually happen, in the real world, is that UB might get delayed setting up your new account because they are so busy at the moment this then cause them to miss your nominated switching date, so, they wait until the same day the following month instead. (great your 4 weeks behind already) Then NIB, who are in no rush to lose you, don’t get around to shutting your account down until about a week after they were supposed to. Then they forget to send letters to half your DD originators. So, the next thing you know, you are being rung by ESB and Vodafone and everyone else complaining that your DD’s have bounced. You have missed your mortgage repayment and you start freaking out that your credit rating is going to be damaged.
So, to avoid all those hassles, I would recommend you do not use their switching service and instead you do it manually, and it is a lot easier than it sounds."
I agree with Brendan on this, having processed many switching mortgages in my time I didn't find that any of the delays or paperwork other than existing mortgage/current account statements have anything to do with the existing lender. The odd time you would get a delay in them issuing the mortgage statements on request but in general it is the lending process that is long and tedious whether switching or buying.