Thousands of homeowners are riding the wave of rising interest rates because overwhelmed banks are too slow to process their mortgage switch applications.
he Central Bank has no plans to reprimand banks even though the delays are a violation of its consumer code.
Now it takes up to four months to complete a change. The reason is a backlog of borrowers rushing to switch to a lower-cost provider before mortgage rates go up.
Any delay will leave borrowers at high risk of losing interest rates currently offered.
Banks lend at the rate at the time a mortgage is taken out, not the rate offered at the start of the process.
That shouldn’t be a big deal because, in principle, mortgage approval is required to be given within 10 days under the Central Bank’s Consumer Protection Code, the rule book on how regulated businesses are supposed to should treat consumers.
But brokers say that in principle it takes 22 to 36 days to get approved for customers who switch.
Brokers report great frustration with the service levels of banks and other lenders in relation to handling mortgage changes.
The managing director of broker Switcheroo Mortgages, Alison Fearon, said that for most banks and lenders it takes four months or more to complete a switch.
Thousands of variable and fixed rate borrowers are rushing to keep the current low fixed rates for as long as they can afford to lock them.
Some are exiting fixed rates and even trackers early to avoid sudden rate increases.
It comes after the European Central Bank ( ECB) raised its main lending rate by 1.25% in recent months, with warnings of more to come.
Borrowers can still get five-year fixed rates of 2.5 percent.
However, there are fears that such rates will soon rise much higher.
If a five-year fixed rate were to hit 3.5%, it would mean the borrower would end up paying an extra €130 a month to lock in the five-year rate.
Over a year, this would cost an additional €1,560 in refunds. This is based on a €250,000 mortgage, with a term of 25 years, with a loan-to-value ratio of 80%.
Martina Hennessy of broker Doddl.ie urged banks and other lenders to stick to the rates people are approved for because it takes a long time to finalize loan deals, leaving borrowers exposed to much higher rates.
When asked what it was doing about poor response time to complete exchanges, the Central Bank made no reference in its response to taking any action to force banks and other lenders to improve their service levels for exchangers or make them respect lower rates.
The Central Bank said mortgage providers were required to inform customers of their decision on the mortgage application within 10 business days. Otherwise, customers must be informed of the reasons for the delay.
Apart from a Central Bank rule on the initial mortgage application decision, it is a business question for mortgage lenders how long the rest of the application process takes.
“The Central Bank expects that the quality of service provided to customers by companies is in line with their expectations and with the internal service level standards of the companies themselves and that all financial companies adopt a consumer-centric approach. and communicate clearly, effectively and in a timely manner with all customers”, said the regulator.