The banks have told us that the mortgage switcher market in Ireland is very small and I'm curious as why this is the case.
Is negative equity preventing SVR mortgage holders from switching?
According to a Central Bank study published in 2014, 64% of performing borrowers had positive equity in their homes in mid-2012. Given the fact that house prices have risen since mid-2012 and mortgages have continued to be paid down over the last three years, it seems reasonable to assume that the majority of SVR mortgage holders have significant positive equity in their homes.
Is unemployment preventing SVR mortgage holders from switching?
According to the above Central Bank study, 85% of performing borrowers were in employment in mid-2012 and unemployment has fallen somewhat since that time.
Are incomes too low to meet new LTI limits?
According to CSO statistics, median disposable income per individual fell from a peak of €20,758 in 2008 to €17,551 in 2013 (the latest year for which I can find statistics). While there may have been a marginal rise in median disposable income over the last 12 months or so, it seems plausible that lower disposable income will prevent certain borrowers from switching.
Also, the personal circumstances of some borrowers will have changed such that there will have been a material fall in disposable household income (for example, one spouse leaving the workforce to care for children or elderly parents).
Are the costs of switching too high?
Many lenders will make a significant contribution towards the legal costs of switching (e.g. Ulster make a €1,500 contribution) and will often offer other incentives (e.g. free house insurance for a year) such that the net costs of switching are often negligible.
Are the savings simply not worth the hassle?
Obviously any savings will depend on individual circumstances.
To take one example, an SVR mortgage holder with a rate of 4.5% on an outstanding principal amount of €300,000 and an outstanding term of 25 years, will save €45,403 (assuming the interest rate differential remains consistent throughout the term and there are no early repayments of capital) if refinanced at 3.55% (the lowest variable rate currently available). It is worth bearing in mind that this is a tax-free saving.
There is certainly some hassle involved with switching but the potential savings can be very significant.
It seems to me that it is likely that there are tens of thousands of SVR mortgage holders that would very significantly benefit from refinancing their mortgages and are in a position to do so. Breaking this level of customer inertia would inject some much needed competition into the mortgage market, which would be in all our interests as it would free up resources for spending elsewhere in the economy.
Thoughts?
Is negative equity preventing SVR mortgage holders from switching?
According to a Central Bank study published in 2014, 64% of performing borrowers had positive equity in their homes in mid-2012. Given the fact that house prices have risen since mid-2012 and mortgages have continued to be paid down over the last three years, it seems reasonable to assume that the majority of SVR mortgage holders have significant positive equity in their homes.
Is unemployment preventing SVR mortgage holders from switching?
According to the above Central Bank study, 85% of performing borrowers were in employment in mid-2012 and unemployment has fallen somewhat since that time.
Are incomes too low to meet new LTI limits?
According to CSO statistics, median disposable income per individual fell from a peak of €20,758 in 2008 to €17,551 in 2013 (the latest year for which I can find statistics). While there may have been a marginal rise in median disposable income over the last 12 months or so, it seems plausible that lower disposable income will prevent certain borrowers from switching.
Also, the personal circumstances of some borrowers will have changed such that there will have been a material fall in disposable household income (for example, one spouse leaving the workforce to care for children or elderly parents).
Are the costs of switching too high?
Many lenders will make a significant contribution towards the legal costs of switching (e.g. Ulster make a €1,500 contribution) and will often offer other incentives (e.g. free house insurance for a year) such that the net costs of switching are often negligible.
Are the savings simply not worth the hassle?
Obviously any savings will depend on individual circumstances.
To take one example, an SVR mortgage holder with a rate of 4.5% on an outstanding principal amount of €300,000 and an outstanding term of 25 years, will save €45,403 (assuming the interest rate differential remains consistent throughout the term and there are no early repayments of capital) if refinanced at 3.55% (the lowest variable rate currently available). It is worth bearing in mind that this is a tax-free saving.
There is certainly some hassle involved with switching but the potential savings can be very significant.
It seems to me that it is likely that there are tens of thousands of SVR mortgage holders that would very significantly benefit from refinancing their mortgages and are in a position to do so. Breaking this level of customer inertia would inject some much needed competition into the mortgage market, which would be in all our interests as it would free up resources for spending elsewhere in the economy.
Thoughts?
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