Cashback mortgages - academic article

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Protocol

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Two economists have studied cashback mortgages.

A summary of their analysis is posted here:

https://voxeu.org/article/disclosure-sludges-and-cashback-mortgage-market

"Financial products with a cashback feature are increasingly popular, but typically cost consumers more in the long run. This column shows that consumers who are younger and less educated, and those affected by present bias and inattention, are more likely to choose more expensive 'cashback mortgages'. Advanced behaviourally informed disclosure improves consumer decision-making. Advertising in the form of a 'negative nudge' or sludge, however, encourages prospective buyers to choose more costly mortgages."
 
They argue that the combination of information asymmetries and information failures, plus uninformed consumers, plus skilled marketers in banks, leads to customers choosing more expensive mortgages.

"The mortgage market, though, is the perfect setting for asymmetric information and information failures. In it, not-very-informed consumers interact with skilled and well-informed sellers (Woodward and Hall 2012). The negative effect of this information mismatch is aggravated by cognitive behavioural factors that cause consumers to make predictable mistakes (Thaler 1985, Barr et al. 2008, Estelami 2001, Perry and Lee 2012)."
 
Being savy about it they're not that unattractive. 1 year fixed, 2% cash back. For ourselves that's 5k cash (take 1400 for fees etc). Ulster could save us 1200 a year on a lower rate, but the cash back still makes sense, and I can be cheeky and move nice and quick and get another 5k back.

I agree they're "a gimmick" but if your interested in reducing the biggest debt you'll likely ever have (managing your mortgage), they can be worth it.
 
I'm trying to champion switching to friends and family. Even our solicitor :) but most people's eyes just glaze over. A lot of folk don't even know what rate they are on.
 
misemoi said:
I'm trying to champion switching to friends and family. Even our solicitor :) but most people's eyes just glaze over. A lot of folk don't even know what rate they are on.
Click to expand...
Our solicitor seemed intrigued about it all, but seems happy to oblige. Tis money is his pocket every move I make.
 
Protocol said:
They argue that the combination of information asymmetries and information failures, plus uninformed consumers, plus skilled marketers in banks, leads to customers choosing more expensive mortgages.
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Back on topic...
This is covered by the Irish times today. I haven't read it fully yet.
https://www.irishtimes.com/business...cost-borrowers-30-000-more-1.3734512?mode=amp

Goodbody have some commentary about the underlying report, and the interest rates used.
[broken link removed]

I'll read both properly once I've Christmas shopping done.
 
Sean Og said:
I have switched 3 times in the last 6 months because of cashbacks and received €18,000 so far €6000 x 3 times. Its the best thing i have done in a long time. Where else would you get €18000 from the banks for nothing?
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Hi Sean Og,

I'm not familiar with mortgage switching rules, etc. Does the bank not have any way of controlling against "sensible shoppers" like yourself? Do the banks not ask questions like when did you buy the property and how long are you with your current mortgage provider, etc.?
 
Sean Og said:
I have switched 3 times in the last 6 months because of cashbacks and received €18,000 so far €6000 x 3 times. Its the best thing i have done in a long time. Where else would you get €18000 from the banks for nothing?
Click to expand...
Well done. Can you give more details? How much is your mortgage and which banks did you switch from and to?
 
elacsaplau said:
Hi Sean Og,

I'm not familiar with mortgage switching rules, etc. Does the bank not have any way of controlling against "sensible shoppers" like yourself? Do the banks not ask questions like when did you buy the property and how long are you with your current mortgage provider, etc.?
Click to expand...

PGF2016 said:
Well done. Can you give more details? How much is your mortgage and which banks did you switch from and to?
Click to expand...

both

Sean has explained all this extensively already, check the posts in the mortgage switch forum
 
To the not very financially savvy, the IT article could be very misleading.

Amazes me that people would pay hundreds if not thousands per annum over the odds for their mortgage without batting an eyelid.
 
Thanks Blackrock,

Seems like this is the essence of it.

https://www.askaboutmoney.com/threa...-aib-€7k-cash-back.210414/page-2#post-1591028


Mf1 gives an excellent summary of the process here.

https://www.askaboutmoney.com/threa...or-to-do-a-switch-for-me.210431/#post-1590978


The reason I asked the question is that it seemed to me that it would be very easy for the bank to control. One additional undertaking from the solicitor (that the client has not switched the mortgage on the specific property in the last x months) would sort it.
 
Yes lads , thanks Blackrock for pointing out my various posts on this matter. I am not the only multi switcher here, there are a few more. Bascially less than 1% of people will switch their mortgage but i feel this is increasing all the time as people become less afraid of the process. Anyone wanting to make a few euro should seriously consider switching a few times. Read all my posts and if you have any specif questions just ask. Key points is to switch to PTSB first because they require you to be with lender 24 months, EBS and BOI then and onto KBC maybe if it's worth the €3000 they offer. My mortgage was 300k so €6000 cashback each time. Solicitor gave me a good deal although i still have to settle the bill. Hopefully around €2500 for the 3 switches.
 
Hey Sean Og,

Per the link in post 12, how come EBS did not work out what you were doing?? Are "banks" really still this incompetent?
 
In fairness to EBS i explained to my local branch what i was doing. If you see my earlier posts on this subject you will see that i was on a 10 year fixed of 5.5% with EBS with about 36 months still to go. My breakage fee was about €21,000. I told them what i was doing and she had no problem. In fairness there isn't a lot they can do. They have to honour their offers AFAIK. You will see that i applied for the 2 mortgages to PTSB and BOI at the same time so they both thought i was just switching to them from EBS. I drew down PTSB first and then switched to BOI within 2 months and then back to EBS for the third switch. Do the same and they will never know and in fact i have spoken to my local Ulster Bank manager and told him i want to switch to their 4 year 2.3% rate and explained what i have done recently and he has no issue and is happy to get my business. I probably won't switch again for a while as their rate is currently the best but in 12 months time i might try BOI again lol. You can only get the cash back once with EBS and PTSB need you to be with your current leader for 24 months. KBC have €3000 with no time frame so it's tempting but my solicitor is getting a bit feed up and i don't want to annoy him as he has been very good. He is afraid some bank is going to give him grief for all the quick switches.
 
elacsaplau said:
The reason I asked the question is that it seemed to me that it would be very easy for the bank to control. One additional undertaking from the solicitor (that the client has not switched the mortgage on the specific property in the last x months) would sort it.
Click to expand...

in the same way that clawback on cash back was made illegal an undertaking like the above would amount to the same thing.

Banks are operating on statistical evidence of switch rates.
 
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