3 days ago
- Business
- Irish Independent
Mortgage lenders ‘banking on people's apathy' as they charge sky-high interest rates
It is estimated that around 100,000 mortgage holders are paying way over the odds on their home loans.
They are paying variable rates that are up to 2.25 percentage points more than necessary, according to the latest Irish Independent Mortgage Switching Index.
Despite the return of sub-3pc variable rates to the market, many borrowers remain on legacy variable products. These are as high as 5.25pc.
Fixed rates have decreased hugely over the last 18 months, but variable rates 'have remained stubbornly high', according to chief executive Martina Hennessy.
She quoted Central Bank figures indicating that 14pc of all mortgages are on variable rates. This works out at almost 100,000 homeowners.
'Banks have large volumes of existing mortgage customers sitting on these high variable rates and to reduce them would mean large back book repricing, which would be costly,' Ms Hennessy said.
'Lenders are banking on customer apathy. Unless more borrowers actively review their rates and switch, there's no pressure to bring these uncompetitive rates down and we will struggle with pricing discipline in the Irish market.'
The Mortgage Switching Index for the second quarter of the year found that borrowers can now save more than double the annual savings available just five years ago.
The average mortgage drawdown now stands at €346,842, up over €112,000 since the second quarter of 2020. This trend is being driven by rising property prices and increased borrowing levels.
Higher mortgage amounts also mean there is a greater impact from securing a lower rate with a mortgage switcher.
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Ms Hennessy said people switching from variable rates can save an average of €7,505 per year, up from €3,349 five years ago.
The Irish Independent Mortgage Switching Index is published quarterly and tracks the savings available to mortgage holders in Ireland through switching.
It is based on the average mortgage drawn down in the quarter and the differential between the highest and lowest mortgage interest rates available.
This is leading to a resurgence in mortgage switching
In June, the lowest rate on the market dropped below 3pc, at 2.98pc. This is the first time rates were this low since 2022.
'The increase in savings for switchers is the direct result of larger mortgages, but also significant interest rate spreads,' Ms Hennessy said.
'This is leading to a resurgence in mortgage switching. However, there still remains a large cohort of homeowners sitting on uncompetitive rates.
'With rates falling, larger loans being drawn down, and new flexible switching options available, apathy can cost borrowers thousands.'
Recent figures from the Banking and Payments Federation Ireland show switching activity up 67pc in volume and 91pc in value year-on-year.
The average value of switcher mortgages has increased to nearly €282,000, up from €235,000 five years ago. Top-up mortgages have increased by 25pc, with homeowners choosing to stay put due to a shortage of homes.
