FF Call for mortgage ‘gimmicks’ to be banned

Significant reforms in the mortgage market have been called for after figures reveal that the number of people switching lenders has collapsed in recent years.

Mortgage “gimmicks” for borrowers should be banned, according to Fianna Fáil, and radical changes need to be agreed to encourage borrowers to switch lenders and thereby potentially reduce interest rates.

Ireland has one of the highest interest rates for mortgages in the eurozone, but there had been hopes that increased banking competition here in recent years would push down charges.

Instead, the average rate charged here is almost double that of other eurozone countries.

Figures obtained by the Irish Examiner show there has been a massive fall-off in the level of mortgage holders switching lenders, a situation it is claimed reduces competition in interest rates.

The number of switched mortgages between 2005 and 2007 numbered more than 75,000 while just 4,700 changed lenders in the years from 2014 to 2016, Fianna Fáil finance spokesman Michael McGrath said.

“The lack of switching in the Irish mortgage market is one of the many reasons why interest rates here are among the highest in the eurozone.

“I firmly believe that cash-back offers and other such gimmicks serve only to muddy the waters and make comparisons a lot harder for customers,” he said, adding that such gimmicks should be banned.

The Department of Finance figures show mortgage switching peaked in earlier years, numbering 18,121 (4.9% of the market) in 2004 and reaching 26,565 (7%) in 2006.

Overall, between 2005 and 2008, in excess of 20,000 loans a year were moved.

But these rates tumbled during the financial crash and have remained at a significantly lower level in recent years.

In 2012, just 455 mortgages were switched; 292 were moved in 2013 and 503 the following year.

Overall, less than 2,700 mortgages were switched between 2012 and 2015. Similarly, numbers switched by borrowers have continued to remain significantly lower, with 2,438 mortgages (0.6 of the market) swapped in 2016 and only 3,070 (0.8%) switched in 2017.

The Department of Finance claim the number and value of loans being switched has increased in recent years, following “subdued lending activity” in the market in previous years.

Nonetheless, Fianna Fáil still believes more can be done by the Government as well as the Central Bank to stimulate competition in the mortgage market and thereby indirectly force down mortgage interest rates.

Mr McGrath maintains that with low switching rates, banks do not have to worry as much about reducing interest rates.

Furthermore, he believes there is a perception that switching can be a lot of hassle and this belief puts people off changing their lender.

Borrowers are still asked to physically swap the deeds of a home and related documents between lenders, he said. This and related ‘red tape’ stops people switching.

Mr McGrath highlighted how a piece of legislation, the Electronic Commerce Act, which is almost two decades old, could be used to ease mortgage switching difficulties.

“People are often put off as well by the thought of the extra hassle of switching their mortgage and suffer far higher interest rates as a result. Reforms to the Electronic Commerce Act, which dates back 18 years now, would also make a huge difference,” the Cork South Central TD said.

“I think both the Central Bank and the Competition and Consumer Protection Commission could be a lot more vocal in encouraging people to switch,” the Fianna Fáil TD said.

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