Borrowers who refinance their mortgages can earn average savings of €1,209 in the first year, new research by the Central Bank has found.
Under the bank's Consumer Protection Code, mortgage lenders must tell customers on variable rates what other lower cost alternative products are available when rates are changing, when a borrower’s fixed rate term is ending and otherwise once a year.
The regulator’s study probed whether certain changes in the language used in those communications with mortgage holders might boost borrowers willingness to consider refinancing and found that it could.
It discovered that refinancing levels increased by three quarters compared to pre-existing standard style notifications under the best performing type of communication.
The analysis found that by adding a reminder letter it could have a particular impact in driving increased refinancing rates.
When personalised euro savings estimates are added to that letter it can help borrowers in making the most informed choices, the paper by Shane Byrne, Kenneth Devine, and Yvonne McCarthy found.
The findings are important because when refinancing rates are low it can unnecessarily increase the burden of repayments on borrowers.
It also impacts the ability of central banks to use monetary policy as a tool.
Competition is also negatively impacted when borrowers remain stuck to incumbent providers.
"Firms should therefore consider their overall approach to communicating mortgage refinancing-related information, to make sure it supports customers to make effective, timely, and informed decisions," said Gerry Cross, the director of financial regulation at the Central Bank.
"In doing so, a firm’s overall approach should be less about simply 'providing information’ and more about ‘seeking to support practical understanding’ by the customer – so that the customer is enabled to take action to enhance their own financial well-being."
The regulator is currently reviewing its Consumer Protection Code and the findings will be considered in that process, he said.
