13 Feb, 2020

Home truth: time to stop thinking about your mortgage like it’s your house

Those of us who are lucky enough to have bought a house will remember what an emotional experience it is. First, there’s the nervous excitement during the highs and lows of the bidding process; the relief when the deal is finally done; and the anticipation when you open the front door to your new home.

But this emotional association with our home often wraps up everything with it. As most people tend to do, when we think back to the happy memories of that time, we edit out all the boring bits like arranging the mortgage or sorting out the legal paperwork. But the connection is still there, even in the back of our minds.

Numbers up

The number of people in Ireland switching their mortgage has trebled over the last four years, but there are still hundreds of thousands of mortgage holders who could save by switching. What’s the explanation for why so many people have yet to switch? As we suggested in our last blog, psychology and human nature play a part. On some level, many of us think of the mortgage as if it’s the house itself.

But here’s the big secret: it isn’t.

A mortgage is just a financial instrument to help people buy a house.

A simple transaction

For the lender, emotion doesn’t come into it. The bank manager isn’t there when you turn the key in the door, or helping you to move furniture, or adding a lick of paint when you’re giving your spare room the Dermot Bannon treatment. To them, it’s just another transaction. So why shouldn’t you think of it in the same way?

Around 60% of Irish people get their mortgage from the same lender they bank with. That’s also an emotional choice, if we think about it. Maybe we feel a certain loyalty to the bank we’ve been with since we opened our very first savings account.

But these days, online banking means that the relationship we have with our bank is mostly just transactional anyway. It’s not like we need to visit the branch every week. 

Minimal interaction

And when it comes to a mortgage in particular, we need to interact with the bank even less than we do for our current account or credit card. Most of us don’t need to check our statements frequently or call the bank. So why should it matter what bank we have our mortgage with? And more importantly, why do we need to stay with the same mortgage lender no matter what? 

So let’s take emotion out of this. 

Some time ago, I had an interesting conversation with a behavioural science expert who researched this area. He found that fear is a very strong emotion that stops us from changing from one mortgage lender to another. Some people are afraid of making the wrong decision and feeling regret about it later. So, they tell themselves that they’re better off staying put.

Obviously, fear is an irrational emotion. It paralyses us and stops us seeing things clearly. Because if we did, we’d see that switching provider could save us hundreds of euro every month.

Switching is easy

When you switch mortgage, nothing changes as far as your home is concerned. It’s a smooth handover that takes just a few clicks online to see if you can save, and a matter of weeks to process. And if anyone is feeling like it’ll be the same stress as the first time you applied for a mortgage, well that’s just not the case. Your new bank just has to be sure you can keep up with the repayments, so you do need to provide income documents and bank statements, but all those items should be easily accessible or in your inbox. It is a much more straightforward process than your very first application as a purchaser. 

Any company you pay a regular bill to, whether that’s a mobile phone provider, energy supplier, or a financial lender, relies to some degree on a hidden emotional pull that keeps customers from switching. 

Get emotional about your home, by all means. But about your mortgage? Come on. The only emotion you should feel is happiness that you made a switch and you’re seeing savings in your pocket.

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Mortgage switching expert Martina Hennessy, Managing Director of doddl.ie. Picture Conor McCabe Photography
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