How to get a cheaper deal without having to move banks
MORTGAGE holders are denying themselves huge savings at two of our main banks. Here is what is at stake:
■ Who are we talking about here?
People who are on standard variable rates. These tend to be the most expensive home-loan products, with the exception of AIB which has lower variable rates than its rivals.
People on trackers are sitting pretty because they have a product that is very cheap, as trackers are usually set at around 1pc above the European Central Bank (ECB) rate, and can only move when the ECB rate moves.
Most people who do not have a tracker are opting to fix.
They know ECB rates are due to rise next year, and fixed rates tend to be cheaper. Ulster Bank introduced a two-year fixed rate at a market-beating 2.3pc last week.
■ How much can be saved by getting a better rate off your bank?
The savings can be huge. Take a family with a €300,000 mortgage with Bank of Ireland. The bank’s variable rate is as high as 4.5pc, but the family could fix for one, two, three or five years for just 3pc. These rates apply to new and existing customers.
The difference in payments between paying
4.5 pc and 3 pc works out at €255 a month, or €3,000 a year.
Permanent TSB has one of the most expensive variable rates at 4.5pc. But it offers these customers the option of what it calls a managed variable rate (MVR). This rate is based on the value of the property relative to what is owed on it.
MVR rates are from 3.7pc to 4.3pc. A family with a €300,000 Permanent TSB mortgage could save €140 a month, or €1,700 a year, by moving from the variable to an MVR of 3.7pc, if they have built up equity in their home.
■ How many people are failing to benefit from these savings?
A combined 100,000 customers from Bank of Ireland and Permanent TSB are stubbornly refusing to opt for better-value rates.
This breaks down as 44,000 customers at Bank of Ireland, and 57,000 at Permanent TSB. There are another 10,000 buy-to-let mortgage holders at BoI.
■ What is involved in the process of moving to a better rate at your bank?
Very little. You are not switching your mortgage to a new lender, so there is no need for a lawyer to carry out conveyancing, and you do not need a broker.
In the case of Permanent TSB, variable rate customers contact the bank and ask for the managed variable rate. They then contact one of the valuers appointed by PTSB to carry out a valuation of the property. The bank pays for the valuation of the home that the rate is based on.
A switch form has to be completed and sent with the valuation to the bank. Assuming it is approved, the customer gets a lower rate based on the current loan to value. Bank of Ireland customers have to contact the bank. They choose to fix repayments for one, two, three or five-year periods.
A form has to be filled out. The homeowner gets put on a fixed rate. No valuation of the home is required. There are no fees. The process can also be carried out online.
■ Why do people not switch when so much money is at stake?
Fear. They worry they will unsettle their mortgage situation, which is the largest outlay for most households. And people do not trust the banks. This makes them sceptical when they are told by their lender it can save them money.
Homeowners are also put off because they think it’s too time-consuming, and too much hassle. Many are not sure how much they can save, which means they would prefer to leave things as they are.
■ What happens when you come out of a fixed rate?
Unless you choose a new fixed rate, you will roll to the bank’s variable rate at the time.
■ Could more be done to encourage people to opt for better rates offered by their own bank?
We have many regulators but it is never clear who is supposed to do what when it comes to consumer protection. Both the Central Bank and the Competition and Consumer Protection Commission need to come together and launch a consumer information campaign on this issue. Banks should do more to convince people to act in their own best interests.