Barriers to Switching Mortgages

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gnf_ireland

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I was reading another thread today, and someone called out the barriers to switching. 3 ones where listed, and I was wondering what could be practically done to assist each of those groups reduce their SVR rate

1. Those who can move, but don't due to apathy, time or some other reason
2. Those who cannot move as they don't qualify for lending under the new Central Bank rules
3. Those who cannot move because their credit rating is impaired as a result of the recession

I believe there is a 4th group, which is effectively non-performing mortgages, but realistically I don't see how any bank would want to accept these customers currently, unless they have a very favourable LTV !

Group 1 - these group need to act. How to get them to act is the million dollar question, but the more that do may at least help in the short term

Group 2 - this is a difficult one, especially if they are a performing mortgage, and are likely to benefit from lower repayment amounts. I would be in favour of these customers moving, even if in negative equity. I am wondering if there is any form of 'risk sharing' that could be done by the two banks to assist these customers - even a split mortgage? The original bank should be happy to reduce their exposure to this customer, so may be willing to support some sort of proposals here? Any ideas on this group ?
Would a form of insurance assist here that would bring the balance down to 80% LTV in the event of a default within the first 3-5 years of the mortgage for example?

Group 3 - this one is difficult. As a lender I would not be able to 'justify' offering the same rate to someone who has defaulted before as to someone who has never defaulted, no matter what the circumstance. There has to be a general acceptance of a premium here in my view. Of course this would depend on new LTV and LTI ratios, and on the mortgage being paid up again and performing. This would obviously depend on the level of engagement of the lender with the bank during the difficult period etc.
This is in effect sub-prime lending for a number of years until the credit rating has recovered.
Would a form of insurance assist here that would pay a years mortgage payments in the event of a default within the first 3-5 years of the mortgage for example?

Those who are in Groups 2 & 3 may be in a very difficult situation.

The only other proposal on the table is to cap the interest rates to be charged on mortgages - but no one appears to want this power currently.

Any other ideas on how these customers can be assisted ?
 
gnf_ireland said:
Group 1 - these group need to act. How to get them to act is the million dollar question, but the more that do may at least help in the short term
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we're in the process of switching to UB - the amount of back and forth looking for documentation and the glacial pace of approval has been painful. Some sort of centralised system whereby you could authorise one bank to access your records at another electronically would speed this up, we already have centralised credit-checking, this would just be an extension to that; would probably require changes to data-protection rules though.
 
@shweeney I moved from BOI to KBC last year and I am self employed. I managed to get it done in ~3 months, although there was a very 'quiet' month in the middle where no progress was made at all. While things were not easy to move, I did not find it overly cumbersome in general

That said, anything that would make the switching/application process easier would be beneficial especially on the legal side
Examples for this include:
- a single legal search that lasts ~12 months
- a single valuation that would be valid across all banks (common list of approved valuers)
- standardised credit report that could be obtained individually and included with the mortgage application

etc etc etc
 
How many people can switch?

Pre 04/05 who are on trackers – these wont switch

06/07/08 – negative equity & trackers can’t/ wont switch

09/10/11 – very few people in this group

12/13/14/15 – Can these people switch? Probably not due to the central bank rules, if you took out a 90% mortgage for 30 years it will take about 5.5 years to reduce to 80%, If you took out a 25 year mortgage it will be a little over 4 years before you meet the central bank requirement of 80% deposit. Over that period banks were giving around 4 times your salary. So unless you have had a pay hike of around 14-15% over this period you are also not eligible to switch.

I reckon KBC’s customer fit this last category due to their aggressive nature over the past few years?



Also, who should you switch too?

BOI – lock you in for 5 years

PTSB – lock you in for 3? I could be wrong

AIB/EBS – don’t pay for fees

UB – only viable if you borrow > 250k and 3.5 times salary

KBC- don't pass on rates
 
SS expert said:
Also, who should you switch too?

BOI – lock you in for 5 years

PTSB – lock you in for 3? I could be wrong

AIB/EBS – don’t pay for fees

UB – only viable if you borrow > 250k and 3.5 times salary

KBC- don't pass on rates
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For me I put all the vendors into a spreadsheet and compared assuming I'd be staying with them for 5 years. I don't think there's much point comparing after that as we're just guessing what the rates will be then. After 5 years I'll do the same again. It's annoying but if a few hours of form filling will save you 10s or 100s of euro a month over 10, 15, 20 years then it's worth it.

I got my shortlist and applied. It's worth applying to a couple, which I found out the hard way as they're so slow and you don't want to find out after 2 months that your first choice has an issue with you (that will make no difference to you repaying your mortgage but it means they can't dot one of their i's :mad:)
 
The vast majority of people won’t create a spreadsheet and work this out for a 5 year period.
 
SS expert said:
The vast majority of people won’t create a spreadsheet and work this out for a 5 year period.
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So? Is there a better way? I was just posting what I did. Happy to hear if there's a more reliable way.
 
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qwerty5 said:
So? Is there a better way? I was just posting what I did. Happy to hear if there's a more reliable way.
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I understand that... we are discussing barriers to switching.
What I mean is that most would not be bothered, a lot of people are financially illiterate
 
SS expert said:
12/13/14/15 – Can these people switch? Probably not due to the central bank rules, if you took out a 90% mortgage for 30 years it will take about 5.5 years to reduce to 80%
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According to the Central Bank, the average originating LTV among all borrowers with no arrears at December 2014 was only 65%. Only a minority of borrowers ever took out 90% mortgages for 30 years.

Also, per the CSO, residential property prices increased significantly at a national level in each of 2013, 2014 and 2015 and that would obviously further reduce current LTVs.
 
Interesting 65%!!! I then stand corrected...
They the primary reason for people not moving is due to the hassle and lack of understanding of the offers the various banks have...?
 
demoivre said:
No I'm not wrong. See point 10 [broken link removed].
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So what does that mean? The CB are not requiring switchers to comply with LTI and LTV limits but each bank would have its own standards for what they require in order to accept a switcher? Potentially a bank could accept a switcher with an LTV above 80% if it chose to? Anyone know of any banks doing that?
 
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