Central Bank consultation paper on switching - deadline 1 November

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Brendan Burgess

Brendan Burgess

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Consultation Paper proposes enhanced measures to aid mortgage switching

http://centralbank.ie/publication/c...-mortgage-measures-transparency-and-switching

· Measures aimed to help consumers make savings on their mortgage repayments

· Standardised mortgage switching information for consumers

· Time bound mortgage switching process


The Central Bank today published a Consultation Paper proposing new measures which would enhance the framework of protections for mortgage holders. The Central Bank is proposing new measures to require lenders to:



  • inform consumers about other available mortgage options that could save them money and about the impact of mortgage-related incentives;
  • help consumers to compare their existing mortgage to other mortgage options;
  • provide consumers with standardised switching information; and
· follow a time-bound switching process.



A copy of the Consultation Paper is available [Link TBC] and the consultation process will be open for comment for three months until 1 November 2017.


The Central Bank’s 2015 research shows that many consumers can make significant savings by switching their mortgage. Information to help consumers compare mortage rates is widely available, including the Competition and Consumer Protection Commission’s (CCPC) online mortgage comparison tool. However, consumer research conducted by the Central Bank also shows the need for greater transparency for consumers which would clearly inform them about the potential savings they could make by switching and the switching process itself. The Central Bank has also had regard to market developments in the areas of fixed rate mortgages and rates based on loan-to-value (LTV), as well as the offer of incentives to consumers to take out a mortgage.



Having concluded this work, the Central Bank is proposing the introduction of statutory requirements to support consumers considering switching their mortgage, to ensure that such activity takes place within a transparent framework that protects the best interests of consumers and ensures they are treated fairly. If implemented, these measures will build on the strong framework of protections already in place for mortgage borrowers, including the enhanced transparency measures introduced for variable rate mortgage holders in 2016.


Acting Deputy Governor Bernard Sheridan said, “The Central Bank has put in place a strong framework to protect consumers both when taking out a mortgage and throughout the term of the mortgage. In proposing these new measures, we aim to build on these strong protections. These measures will require lenders to provide consumers with the necessary information at the right time to consider their options and ensure that the process facilitates consumers who want to switch their mortgage.”



ENDS
 
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extracts

Of course, when ‘switching’ mortgage, a consumer is in fact taking out a new loan.
Accordingly, we concluded that a number of the new measures proposed in this Consultation
Paper should apply equally to all consumers engaged in the mortgage application process,
whether a first time buyer, switcher, mover or consumer applying for a top-up mortgage.

However, the legal process is outside the
remit of the Central Bank and it is consequently not within the scope of this Consultation
Paper. Given the results of our consumer research, the Central Bank would welcome any
initiatives or developments that would enhance the legal process in the context of consumers
switching their mortgage.



When developing these proposals, we considered whether a separate Mortgage Switching
Code should be developed. However, we believe that amending the existing Code is the more
appropriate option. Many of the identified measures relate to enhancing existing
transparency requirements in the Code. Also, several proposed new requirements will be
applicable to all mortgage applicants, not just those seeking to switch their mortgage.

Summary of proposed policy measures


Fixed interest rates
Lenders to:
 notify the consumer 30 days before the expiry of a fixed interest rate and include
details of the new rate applicable from the expiry date;
 where the new rate applicable on expiry of a fixed rate is not a tracker interest rate,
provide information about other available interest rates and mortgage products and
a link to the online CCPC mortgage comparison tool and switching information.

Variable interest rates based on Loan-to-Value (LTV) (excluding tracker interest rates)
Lenders to notify consumers on an annual basis of whether they can, or cannot, move LTVinterest rate bands subject to the provision of an up-to-date valuation to their lender and, atthe same time:
 if the lender does permit movement between LTV bands, include an invitation to the
consumer to contact the lender to discuss further; or
 if the lender does not permit movement between LTV bands, the lender must notifythe consumer that lower rates based on LTV may be available from other lenders andprovide a link to the online CCPC comparison tool and switching information.

Incentives related to mortgages
Lenders to:
 notify the consumer prior to the purchase of a mortgage of the potential impact of an
associated incentive on the cost of their mortgage and any other key information that
the consumer should have available to them when considering such an incentive.


Further information

We are also
concerned about whether lenders are informing consumers about their policy on movement
between LTV bands at important times during the life of the mortgage. We are aware that
there is a wide variation in how variable interest rates based on LTV operate. Some lenders
permit, and even promote, movement between LTV bands on interest rates while other
lenders set the LTV band at the point of drawdown without permitting change later.

Enhanced Mortgage Measures: Transparency and Switching
We are proposing that lenders should, on the request of the consumer, set out an indicative
comparison of the total interest payable if the consumer continues with their existing interest
rate and the total interest payable on the new mortgage or alternative interest rate. The new
lender would have to give consumers an indication of the possible savings that could be made
over the lifetime of their mortgage if they were to move lender. Separately, the existing
lender would have to provide the consumer with an indication of the possible savings if they
moved to a different interest rate with that same lender. This will facilitate the comparison of
products and highlight the potential savings available to a consumer in relation to other
interest rates and products.

4.4 Time-bound Switching Process with Specified Timelines - Summary of proposed policy measures

I. Original lender: Provision of redemption figures to the consumer or their legal
representative within three business days of request.

II. New lender to keep the consumer up to date throughout the process, including:
 information and documents required from the consumer to switch a
mortgage;
 next steps in the process, e.g. notify consumer of outstanding documents,

etc.
Achieve this with specific timelines for:
 acknowledgement within three business days of receipt of individual
items/documents required to complete the mortgage application;
 acknowledgement within three business days of receipt of all documentation
required for the mortgage application;
 decision within 10 business days following receipt of all required information
for assessment of mortgage application.
III. Switching Point of Contact
Both original and new lender to establish mortgage switching point of
contact/switching team.
 
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The guys in the Central Bank really haven't any understanding of the costs of regulation.

They will require any new lender to make a decision within 10 working days???

What absolute rubbish. That is not what is causing the reluctance to switch. Imposing stupid regulations like this imposes additional costs on lenders, which are inevitably passed on to the borrowers.

And this pussyfooting around with cash incentives - just ban them.

The most interesting thing in the whole paper is their reporting that the International Financial Consumer Protection Organisation's
guidance states

"that supervisors’ oversight should include consideration of the benefit of promotional incentives offered to consumers versus the cost of the credit product.

...

when to restrict or prohibit this practice on the grounds that the apparent benefit of the promotional incentive is in fact illusory."

The Central Bank should not be faffing about with paper and meaningless regulations. They should just issue serious regulations which would make a difference to consumers.
 
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I have. I pointed out the use of stress testing on 5-year fixed rate mortgages by certain lenders even though they are not required to do so under current regulations....
 
Hi Joe

But is it not up the lender to decide what stress tests to use as long as they are not less stringent than the Central Bank's?

Brendan
 
Brendan Burgess said:
Hi Joe

But is it not up the lender to decide what stress tests to use as long as they are not less stringent than the Central Bank's?

Brendan
Click to expand...

Of course.

But the lender I was dealing with said that it was the central bank that obliged them to stress test 5 year mortgages, when this is not the case. I pointed this out to the representative who checked with the underwriters and they confirmed that I was correct.

If the stress test was not enforced by this bank I would be fixed for 5 years, and paying less than I am currently paying to my current lender at variable rate. So why stress test for 5 years? In my submission I stated that my current lender can increase my mortgage by 2.5% if they want to, and that there would be no requirement on them to stress test me. There would be nothing that I could do but to try and pay it. Effectively, I have no choice in switching mortgage provider due to stress testing terms they have themselves applied and suggest they are carrying out on the instruction of the CBI...
 
An interesting point about the 2% stress testing is that it was originally brought in to protect customers under CPC legislation - to prevent banks lending more than a customer can afford. But the code made no allowances for switching, so it acts as a barrier to switching.

Of course, it's likely banks would stress test in any event as part of their underwriting even if CPC didn't enforce it.
 
Joe90 said:
the lender I was dealing with said that it was the central bank that obliged them to stress test 5 year mortgages, when this is not the case.
Click to expand...

Hi Joe

Banks and others will often blame the regulators for refusals they would give anyway in the absence of regulation.


Brendan
 
Has anybody any idea what happened to these proposals?

The consultation period closed on 1 November 2017 and not a word since that I can see.

The Central Bank's proposed changes to the Code as outlined in the consultation paper to assist switching mortgage provider looked entirely practical and uncontroversial to me.

Any ideas what's causing the hold up?
 
The Central Bank will be publishing the changes to the Consumer Protection Code tomorrow at 12 noon.

I have no idea what they have decided.

Brendan
 
The Central Bank contacted me about 6 weeks ago to say that they would be including a redacted version of my submission in this report. Do you have a link to it?
 
Thanks Sarenco.

My submission was published, but it is so heavily redacted it loses most of it's purpose and meaning......
 
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