Mortgage switching – January 2020
The CCPC funded a controlled experiment carried out by the ESRI’s Behavioral Research Unit in order to better understand how to help consumers make decisions around their mortgage. In the experiment, a representative sample of mortgage-holders answered questions about how mortgages work and listed what they thought they would need to do if they wanted to switch. They also rated switching offers. Responses given before reading CCPC’s online advice were compared to responses given afterwards.
The results showed that mortgage-holders were initially drawn to high cashback offers that are ultimately more expensive. For instance, on average, consumers preferred €2,200 in cashback to a 0.4% better APR. Yet, for the average mortgage, this amounts to taking out a loan for €2,200 at 24% interest.
After reading the official advice, consumers placed much more weight on APR and the long-term savings they could make. They also became more confident about picking good deals. The experiment therefore supports new regulations introduced in 2019, which require lenders to direct consumers to this advice.
The experiment also revealed potentially serious misunderstandings. When asked what they would need to do to switch, just one third of mortgage-holders realised that they would need a solicitor and one quarter that they would need to have the property revalued – typically the two largest costs when switching.
Furthermore, most consumers did not understand one or more basic aspects of mortgage products. Examples included how repayments relate to the cost and length of a mortgage, the implications of paying only interest, or the extent of debt liability
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