We need to bring in standalone legislation to establish a simple switching procedure
Brian Hayes MEP today said that the next government should follow Italy’s example to encourage mortgage holders to switch providers to avail of lower interest rates. Mr. Hayes says that it’s time to bring in standalone legislation to establish a simple mortgage switching procedure.
“One important way that we can get variable mortgage rates to come down is by making it easier for mortgage holders to switch providers. This will instil competition into the market and force banks to lower rates to more competitive levels.
“The Competition and Consumer Protection Commission has recently published a survey which showed that only one in seven mortgage holders have thought about switching. And only 2% of mortgage holders have actually switched in the last five years.
“If we look at Italy, they have brought in a specific switching mechanism which makes it easy for consumers to switch mortgage loans. This is a practice that the major Italian banks have to comply with and is a no cost procedure for the borrower.
“It works as follows:
- When switching, the new capital borrowed must be the same amount that is outstanding on the mortgage.
- The borrower can change the type of interest rate – fixed or variable – and the length of the mortgage term.
- The two banks (old and new) are involved in the process and have to share information.
- There is no cost for the borrower in this procedure – no switching fees, no valuation fees, no insurance fees, no tax and no notary cost.
- The switching procedure should take place within 30 days from when the borrower makes the request to the new provider.
“This is all written into Italian legislation. And in 2015, 32% of new mortgages in Italy were generated through consumers switching to another provider.
“I believe the Dáil and the next government need to take example from Italy by introducing standalone legislation to set up a specific switching mechanism. The idea should be to put in place procedures that ensure it is cost-effective and simple to switch mortgage providers. Switching should be a consumer right.
“We essentially have 5 main banks offering similar interest rates for mortgages. There is a complete lack of competition in the market. But if we had switching rates anywhere near Italy, mortgage rates would be much lower in Ireland.
“People are still being ripped off by banks charging very high variable mortgage rates. The rates have come down by a small degree in the past year but Irish mortgage holders are still being overcharged compared to our Eurozone neighbours. The average variable mortgage rate in the Eurozone is almost 2 per cent lower than Ireland.
“I have continuously been arguing the European Commission to bring in rules that make it easier for mortgage holders to switch mortgages on a cross-border basis. We are in a single market; we have a European Central Bank which sets the main interest rate for banks so there is no reason why a mortgage holder in Ireland should not be able to switch their mortgage to a provider in Germany or France to avail of a lower rate.”