Banks told to improve communication around mortgage switching

Homeowners far more likely to switch to a lower mortgage rate when information is clearer

Homeowners who switched rates saved an average of €1,209 in the first 12 months alone. Picture: Jason Alden/Bloomberg

The Central Bank of Ireland (CBI) has told the country's main banks to better communicate mortgage refinancing options to their customers.

It follows a study by the CBI which has found there was a 76% increase in homeowners moving their mortgage to a lower rate when they were shown the savings they could make and a clear pathway for the next steps in changing their mortgage interest rate. Of those who switched their mortgage rate, the homeowners saved an average of €1,209 in the first 12 months alone.

The study notes that there still remains a widespread tendency for mortgage holders to forego opportunities to reduce their repayment burden through refinancing. "This puzzle has persisted in spite of considerable regulatory and public attention to the topic," it notes.

Banks are required to inform variable rate mortgage holders about other, lower-cost mortgage products that are available. The CBI partnered with one of Ireland's main mortgage lenders in early 2020 as they were planning to write to all their customers. 

A random sample of more than 12,000 customers was selected and divided into six with each group receiving a different letter outlining in various degrees the improvements they could make by switching to a different rate.

The study found that the group who received the most enhanced letters setting out potential savings along with reminder letters saw a substantial uptake bringing about an increase in the probability of mortgage refinancing of up to 76%.

In a meeting with Ireland's main lenders this week, the Central Bank Director of Financial Regulation, Policy and Risk, Gerry Cross said the research "provides the basis for lenders to make enhancements to the way they communicate mortgage refinancing information to customers".

"Firms should therefore consider their overall approach to communicating mortgage refinancing-related information, to make sure it supports customers to make effective, timely and informed decisions. In doing so, a firm’s overall approach should be less about simply providing information and more about ‘seeking to support practical understanding’ by the customer – so that the customer is enabled to take action to enhance their own financial well-being," Mr Cross said.