The Central Bank has today published an Economic Letter entitled “Room to improve: A review of switching activity in the Irish mortgage market” which provides a detailed review of switching activity in the Irish mortgage market.
The Letter finds that three in five (62%) PDH mortgages which are eligible to switch could save more than €1,000 within the first 12 months if they switch to the best available rate in the market. Of those that are eligible to switch, 72% stand to save over one-tenth of their annual repayment cost. Moreover, 61% of eligible switchers could save over €10,000 over the remaining term of the mortgage.
It suggests that there are higher average potential savings among younger borrowers and first time buyers (FTBs). The Letter finds that 81% of switchers opt to take up a fixed mortgage, and the average interest rate payable among switchers is almost a full percentage point lower than non-switchers.
The Letter also examines potential barriers to mortgage switching among different types of borrowers. It found that behavioural characteristics may pose a barrier to customer engagement, and the Letter also finds that those with lower levels of financial literacy and education are more likely to exhibit a high degree of inhibition to switching.
Notably, this high inhibition category includes a higher share of first-time borrowers, and borrowers who took out mortgages during the peak years of the housing boom.
According to the Central Bank, "These insights underline the importance of policy design that takes into account the diverse obstacles that may influence patterns of engagement and inertia in the Irish mortgage market. This is especially important in cases where household action correlates with existing sources of vulnerability among consumers."
They added, "Although outside the period of research, the COVID-19 pandemic has placed pressure on a significant number of borrowers and may, understandably, dampen switching activity. The Central Bank has also published an infographic and explainer to raise consumer awareness and understanding of mortgage switching rules."