Mortgage price war set to encourage more homeowners to switch lenders

The mortgage price war among banks on interest rates is set to prompt more people to switch as they realise they are being overcharged.

More houses are out of negative equity, which will also encourage more people to move mortgage provider, according to brokers MyMortgages.ie.

The brokerage estimates that families could save between €40,000 and €100,000 over the life of the loan by moving to a better-value lender.

Joey Sheahan of MyMorgtages.ie said he expects a surge in mortgage switching in the next year as banks rump up the interest-rate price war, and more households will move into positive equity.

"With the still curtailed new house building, banks are struggling to hit their mortgage targets and so are turning to the switching market. This is creating an opportunity for many homeowners to make considerably savings," Mr Sheahan said.

He said many people assume that once they have taken out a mortgage with a lender for 20 or 30 years, then that’s the end of the decision-making process.

But mortgages are just like any other financial product – they should be reviewed every three years to ensure you are not paying over the odds, he said.

Mr Sheahan said he has no sympathy for some borrowers who complain that they are paying high rates.

"There are lots of homeowners needlessly paying more than 3.6pc in interest, but a large portion of these people can easily switch lender once they have 10pc equity in their property.

"There are less and less people in negative equity due to the unprecedented recovery in property values over the past few years."

Recent research commissioned by the Competition and Consumer Protection Commission, the State agency that promotes consumer interests, found that small numbers switch mortgages.

Just one in seven mortgage holders have thought about switching, or actively engaged with their lender in the last five years.

And despite the savings that can be made, only 2pc of mortgage holders actually switched provider in the last half decade.

Mr Sheahan said large numbers of people are struggling financially under the weight of these rates. “We deal with clients on a daily basis who are unaware that switching could even be an option for them – many believe they are simply ‘locked in’ to the contract with their current lender.

"And of those who have heard of switching, most just think it’s ‘too much hassle’."

He said consumers do not realise that most banks will give cashback which will more than cover this from €1,500 up to 2pc of the loan amount.

Savings of close to €300 a month can be made by moving from a mortgage provider charging 4.20pc for a mortgage to one with a rate of 2.75pc, on a €350,000 mortgage.

Research from the Central Bank in 2015 showed that one in five mortgage holders could make savings by switching their mortgage.

David Kieran