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Mortgage Switching

1.  Traditionally the Central Bank presents the level of mortgage switching activity in the following way: the number of mortgages being switched as a percentage of total outstanding private dwelling house (PDH) credit. This gives rise to a figure of less than 1% for the current level of mortgage switching activity.  Crucially, this does not allow for the fact that more than 40% of the existing stock of outstanding mortgages are tracker mortgages with competitive rates such that switching is not really an effective option.

2.  Another way of assessing actual switching activity is to look at the number of re-mortgages (switches) as a % of all mortgages drawn down (rather than total outstanding stock).  Taking the number of re-mortgages (switches) drawn down as a percentage of all mortgages drawn down for Q1 over a number of years presents the following trend:

2004 Q1               10.3%
2008 Q1               21.5%
2012 Q1               4.7%
2016 Q1               7.7%
2018 Q1               12.3%
2019 Q1               15.5%

This indicates a positive trend: namely, a significant recovery – albeit from relatively low levels – in the level of switching towards the historically highest level that prevailed around 2008.

The actual numbers of mortgage switches can be found in the BPFI Data Series here under ‘number of loans’.

3.  Switching is an important competitive dynamic in the marketplace. The perceived level of switching activity in itself could be said to be an influencing factor on the borrower’s decision on whether or not to switch: the higher the perceived level of switching, the more comfortable borrowers generally will likely be with the concept of switching.  It’s therefore important that the existing effective level of mortgage switching is clearly and fully understood.

4.  Mortgage switching has been made easier for borrowers. Since January 2019 mortgage lenders are required by the Central Bank to:

  • Tell the borrower about cheaper options 60 days before s/he comes out of a fixed rate mortgage
  • Tell the borrower if s/he can switch to a cheaper mortgage based on how much equity is in the home
  • Clearly explain the pros and cons of any mortgage incentives such as cashback offers
  • Give the borrower a comparison of how much the existing mortgage costs versus other options offered by the lender if s/he asks for one
  • Give switchers all the information they need to switch, including how long it will take
  • Give the borrower a decision within ten business days of receiving a completed mortgage application.

Further details are available here.

5.  Mortgage switching is not without its remaining challenges: e.g.

  • Credit assessment: where the switch is from one institution to another, the lender to which the mortgage is being switched will likely want to undertake its own credit assessment independent of that undertaken by the original lender
  • Legal costs: the switcher will likely incur costs for legal services related to the switch.

Summary

  • Mortgage switching activity is greater than Central Bank statistics indicate
  • The trend in switching activity is positive
  • Perception of switching activity is, in itself, likely to be a determinant of consumer behaviour