I have several clients making decisions about mortgages at present and switching is an option for some of them. In Ireland, there is a thriving industry in the comparison of financial products, from car and home insurance traditionally, to more recently life and health insurance, among others.
Mortgage switching has remained stubbornly low though. Why is that?
First off, switching mortgage providers may save you a LOT of money. Why else would you do it? Banks in this country rely on smarmy, misleading “lifestyle” advertising to sell their product by pushing a vision of a desired way of living. Fine for IKEA, but to me not for banks. Taking time to look under the surface and past what they are pushing may pay off handsomely.
The ESRI did an interesting study on mortgages and the increasing regulatory focus on switching mortgages for value. The findings are also relevant for those taking out new mortgages.
After an experiment on consumers’ perception of switching offers and their own competence in deciding on the offers, they made several findings, including:
- “Cashback” offers can appeal to those who are attracted to upfront benefits, at the expense of longer-term costs.
- Ireland, being a country, whose banks offer cashback deals, typically have higher interest rates than those countries without.
- People thought switching was too complex.
- More financially literate people were more inclined to switch and put up with the “hassle”, appreciating the value of doing so.
Indeed, Amárach Research looked at mortgage switching attitudes in 2017 and found from those surveyed:
- The illusion of complexity about switching suits the banks.
- Ignorance of how mortgages worked, and low confidence were some of the main barriers to switching.
- Because of all this, willingness to take risk was low.
- Brand awareness and loyalty was an important factor in not switching but also that the banks didn’t seem to give a damn if you switched away from them.
So bottom line is that people see it as a hassle to switch mortgage and they do not have the knowledge or confidence needed to make the decision. If you are looking to take out or switch mortgage, don’t go in blind. Spending time increasing your knowledge, literacy and confidence in this area pays off.
If thinking about taking out or switching mortgages why not:
- Visit the excellent website of the Competition and Consumer Protection Commission (CCPC). It has some tools to compare and analyse financial products and is well worth a visit.
- Speak to a mortgage broker about switching or comparing mortgage products. Good brokers will be able to tell you quickly if it is worth your while.
Good luck with that. I feel your pain. Refer to pic of yellow duck to calm down.