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Mortgage Switching More Prevalent Than Many Realise, says BPFI

18th November 2019

Some 160,000 have switched mortgage since 2003

Borrowers encouraged to consider switching

Mortgage switching activity by borrowers from one lender to another is at levels last seen in the mid-2000s before the financial crisis, according to an analysis by Banking & Payments Federation Ireland (BPFI) of mortgages drawn down by borrowers since 2003.

Cumulatively since 2003 when data compilation commenced, 159,592 borrowers have switched from one mortgage lender to another.  While the bulk of these took place during the years before the financial crisis, it illustrates the capacity of the banking system to facilitate switching in response to consumer demand.

Taking the number of re-mortgages (switches) as a % of all mortgages drawn down in Q3 of each year over the last 17 years*, the BPFI analysis shows the following: while switching activity varies over time, it has been generally increasing over recent years and returning to levels last seen before the financial crisis:

Year     Mortgage Switching as % of Mortgage Drawdowns

2003      8.8%
2004      10.9%
2005      13.1%
2006      12.8%
2007      17.4%
2008      17.5%
2009      13.1%
2010       8.0%
2011       6.5%
2012       2.7%
2013      1.7%
2014      2.0%
2015      4.6%
2016      8.3%
2017      8.2%
2018      13.1%
2019      12.1%

The analysis shows that mortgage switching activity reached a peak in the 2007-08 period, fell to a low of 1.7% in 2013 and has rebounded to in excess of 12% today.  This indicates a broadly 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.

In addition to switching between lenders, borrowers will now find it easier to switch mortgage product with their existing lender.  Since January 2019 mortgage lenders are required 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.

While encouraging borrowers to consider switching in line with their particular requirements, BPFI points out that mortgage switching between lenders is not without its remaining challenges:

  • 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.

BPFI CEO, Brian Hayes, states:

Mortgage switching will not be for everyone: some 41% of borrowers have tracker mortgages with very attractive rates; while some 81% of all new PDH lending is at fixed rates.  This reality limits the scope for switching activity.  However, for other borrowers switching may well be rewarding and we would encourage them to consider their options.  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.”

 

Notes

*Q3 is taken as the reference point as it is the most recent quarter, Q3 2019, for which data is available.  The year 2003 is the first year for which this data is available.

The full data series for mortgage drawdowns can be viewed here – https://www.bpfi.ie/publications/bpfi-mortgage-drawdowns/

Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland.  Together with its affiliates, the Federation of International Banks in Ireland and the Fintech & Payments Association of Ireland, BPFI has 100 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

For Further Information Contact: Jillian Heffernan, Head of Communications, BPFI, ph: 01 474 8835 / 086 9016880

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