Central Bank changes that came into effect on mortgages at the start of the year represent a missed opportunity to tackle some of the worst excesses of our dysfunctional home-loans market. Now lenders will have to tell customers if they can make savings on their mortgages. Lenders will also have to let variable-rate mortgage customers know every year whether or not they can move to a cheaper interest rate.
The changes to the Consumer Protection Code will mean consumers on a variable rate will have to be told every year by their lender if they could get a cheaper interest rate due to a change in their loan-to-value ratio.
This comes in the context of a situation where banks have long been accused of fleecing mortgage holders – Ireland has the highest interest rates in the eurozone.
The average new business mortgage rate in this country is 3.06pc. That compares with an average in the eurozone of 1.77pc. On a €200,000 mortgage, an Irish borrower is repaying €510 a month. The average repayment across the Eurozone works out at €295, a difference of €215 a month.
Variable and fixed-rate mortgages in this country are excessively expensive. However, huge numbers of mortgage holders could get a better deal without even switching lender.
These include large numbers of Bank of Ireland customers who are paying 4.5pc on variable rates. These homeowners could cut their rate to 3pc by fixing for one year. That would be a saving of €250 a month on a €200,000 mortgage, according to calculations by consumer advocate Brendan Burgess.
Those who go the extra mile and switch lender could do even better. Moving to Ulster Bank could mean benefiting from its two-year rate of 2.3pc. That would mean a monthly saving of €350 on a €200,000 mortgage.
This begs the question as to why there is so little switching to cheaper lenders, or even cheaper products, with the same lender.
It is because most people find mortgages difficult to understand. They don’t get finance and percentages, and interest rates seem to be a particular problem.
Burgess reckons Irish banks operate a ‘confusopoly’ – they make it very hard for customers to understand the best deals.
They require customers to be proactive.
The Central Bank should have gone much further when altering its Consumer Protection Code. It should have forced banks to stop offering cash-back deals.
If they were banned from giving cash back, they would have to reduce their rates to match the 2.3pc offered by Ulster Bank.
That alone would have been a huge statement of intent. What a pity the Central Bank bottled it.
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