Competition between mortgage providers has increased dramatically over the past couple of years. People are switching more frequently than every before trying to find the best mortgage rate for themselves. Over the last three years, the percentage of mortgage holders prepared to switch providers has doubled according to a banking sector report. Additionally, these figures are higher than what the official figures from the Central Bank are. Also, the Irish Banking & Payments Federation (IBPF) marks the rate of switching at over 15% which compares to the slightly more than 1% rate that the Central Bank has pit forward.
The federation suggests that the much lower calculations from the Central Bank could have a negative effect on how willing consumers are to search around for value. The IBPF notes the difference in numbers is caused by the Central Bank using the number of mortgages being switched as a percentage of total outstanding private dwelling house credit. IBPF stated, “This gives rise to a figure of less than 1 per cent for the current level of mortgage-switching activity” and “Crucially, this does not allow for the fact that more than 40 per cent of the existing stock of outstanding mortgages are tracker mortgages with competitive rates, such that switching is not really an effective option”.
A better way to monitor the total switching activity would be to look at the total number of all mortgages draw down and not just the total outstanding stock. The Central Bank is not truly representing the whole system when they calculate the number of switches between lenders. The calculation that they choose to use shows a lower percentage than is what is actually happening.
Switching mortgages is an important competitive dynamic in the market and shows that there is a healthy amount of competition going on. When they are only a few lenders for money they can rise rates because there is a higher demand than supply. Additionally, the higher levels of switching can cause consumers to be more comfortable with switching themselves and finding the best rate. For example, someone on a 4.3% standard variable rate for 250,000 Euros and switched to the cheapest rate for twenty years. As a result, they could save approximately 250 Euro’s per month or 60,0000 euros during the life of the loan.
