Why pay €90k more for your mortgages? Here's how you can switch

Why does practically everyone else in Europe pay less for their mortgages than us?

The Finns pay nearly five times less – just €820 a month for a €225k loan compared to our monthly bill of €1119 for the same loan.

That’s nearly €300 a month less than the average Irish mortgage. And it certainly mounts up over 25 years – to a whopping €90k.

Even the average Eurozone rate is almost three times less than ours.

This is the reason Avant Money has managed to make such a splash here by offering a variable mortgage rate that’s still nearly double the Eurozone average - but still cheaper than most home loans here.

Here’s why we lag so far behind when it comes to mortgage value:

We don’t shop around

Despite being able to save as much as a sizeable lottery win, most people simply do not switch their mortgages, or anything else for that matter. 

However, switching rates are much higher for other items like energy and TV/broadband, running at 15%.

The hundreds of euro to be saved make it well worthwhile. Yet switching mortgages could save you €80k and a 2017 a study by the Competition and Consumer Protection Commission (CCPC) found only 6% of borrowers even considered switching and just 2% actually did it!

We are subservient to banks

The Finns pay the lowest mortgage rates in Europe because they won’t put up with any nonsense from banks - or anyone else. 

The only small nation in history to beat off a Russian invasion, they have no problem putting banks in their place if necessary.

Finns insist on getting the best prices  and the best products. They are mostly on tracker mortgages – the lowest type, which banks don’t even offer here any more.

The CCPC report on mortgages suggests that we are quite the opposite. Consumers here insist on fixed loans, which are higher than normal rates, because they are don’t fully understand what they are buying and are risk-averse.

They also adopt a subservient role in their relationship to banks with one borrower in the CCPC report noting that you “had to put on a suit and you had to go and get interviewed” when applying for a loan, as if it were a plum job!

The CCPC pinpointed an inability among borrowers “to recognise their own power as consumers in the process: and they regard themselves as vulnerable participants rather than peers in the relationship.”

Repossession rates

It takes 18 to 72 months in Ireland to effect repossession here - compared with 9-12 months in the UK and just six months in Denmark, according to a recent report.

Part of the reason for this is was empathy for the borrower in our courts and society in general, which is understandable. 

But we also have to accept that it comes at a price in terms of increasing the cost of our mortgages to at least some extent.

Capital rules

It may seem like taking the proverbial sort of action ‘after the horse has bolted’, but the Central Bank fairly slammed the stable door shut after banks went bust in the last recession.

It now demands that banks keep very onerous amounts of capital in reserve compared to other countries, which greatly restricts lending and makes mortgages dearer.

Poor competition

In 2007 there were 10 large lenders in the Irish mortgage market. This fell to just 5 by 2013. Prior to Avant Money’s arrival, there were still only seven years later, most of them small and broker-based.

The fuss over Avant’s arrival in a way highlights the lack of mortgage competition here for reasons also outlined above.

How to switch

1. Contact your lender and confirm your rate of interest, balance outstanding and term remaining on the mortgage. Ask them if the interest rate you are currently on is the best available to you and ask what rate options are available to you as an existing customer. 

2. Compare your rate with others via comparison site Bonkers.ie or Ccpc.ie, the website of the Competition and Consumer Protection Commission.

3. You can work out the savings Or simply contact an authorised mortgage broker and ask them to compare your existing mortgage terms to what is available to you.  A broker won’t cost you any money but check which lenders it has agencies for. With some brokers you may miss out on the cheapest deals.

4. You can switch even if your loan is worth 90% of your house value. But the lower that figure – i.e. the more equity you have in your home - the better the new terms.  Many people don’t realise the rate they qualify gets better as they pay off the loan and property values rise.

5. Find out what incentives other lenders will offer you to make the switch.  The “incentive” offered by all lenders should more than cover the legal costs as well as any possible breakage fee. You could even make a profit by pocketing a bigger incentive than the actual cost of switching.

6. But beware of cashback deals, which are generally offered by the dearer variable rate lenders (i.e. Bank of Ireland and PTSB). That’s not to say you couldn’t take the ‘money and run’ by trousering the cash and switching as soon as you can – or going on a low fixed rate and switching when you start to get clobbered by a dear variable rate.

What will I need?

This varies from lender. Some only require:

- Application form

- Identification,

- 3 x recent payslips,

- 6 months recent current account statements

- Most recent credit card & mortgage statement.