Hello again and welcome to this week’s On The Money newsletter. It’s tempting as we enter 2024 to think that the worst of the cost of living crisis may be behind us. Interest rates finally appear to have hit a plateau with some prospect of lower payments on mortgages and other loans as the year progresses.
And, more broadly, the rate of inflation is trending downwards. Despite the occasional glitch as we saw last month, it is now just half the 9.2 per cent annualised rate we saw it hit at the peak of the cycle back in October 2022.
No need to worry about switching then, is there? Quite the contrary. There was an understandable focus on switching as rising interest rates exacerbated a more general cost of living squeeze as we came out of the pandemic. But that doesn’t mean we should now be taking our eye off the advantages of switching across a wide range of domestic bills.
First, prices are not now falling; they’re just rising at a (hopefully) more modest pace. Interest rates may fall but there are wide differences between analysts as to when those cuts will commence and also how far they will go this year and next. The later the first cut to interest rates this year, the more likely that homeowners will, on average, see the cost of their home loan in 2024 being higher even than 2023.
Meantime, the Government is talking increasingly about phasing out supports that dulled some of the pain of sharp rises in energy prices and elsewhere. And the mortgage interest tax credit – designed to soften the blow of those higher interest rates last year – is only kicking in at the end of the month and is scheduled to be available for one year only.
If anything, your focus on switching should be more intense this year than ever – not least as Irish people’s record on switching suppliers of utilities and financial services is shockingly poor to begin with.
Two things tend to stop people moving product or provider. The first is the effort involved in any such move, something we’ll return to in a minute.
The second, certainly in a year like this, when we expect energy prices and mortgage rates to move downwards, is the fear that you could make the jump only to find you have just left a company offering a better rate down the line.
It’s understandable but also paralysing. If we keep waiting for the perfect time in an environment where we have no accurate sense of which providers will move and when, we’ll never save money. The one thing we do know in the Irish market is that movers tend to be able to avail of better offers than loyal customers who stay put year after year.
Mortgages
Looking at what is, for most, our biggest bill, the mortgage, up to 100,000 mortgage holders in Ireland face dramatic increases in their payments this year as they come to the end of the fixed rate period that has insulated them thus far from the record run of European Central Bank interest rate rises.
In a note shortly before Christmas, broker Doddl said the gap between the highest and lowest rates available on the Irish market was 3.3 percentage points. For someone with the average mortgage drawn down last year of €300,631, that could mean a difference of almost €600 a month, or over €7,000 over the course of a year.
Choosing the right product makes financial sense. If that’s one provided by your existing lender, well and good; if not, you need to be prepared to move.
“People fear that they have missed the boat,,” says Doddl managing director Martina Hennessy, “but the reality is that the repayment gap is widening, and it is now more important than ever to review your mortgage rate.
“Fear of selecting the wrong options means that we do not act at all, and remain paying needlessly high rates of interest on our biggest outgoing.”
I’m not going to pretend it’s hassle free. It’s not entirely, but neither is it as cumbersome as you might think. Moving provider will incur some costs for property valuation and necessary legal process but those costs could well be offset reasonably quickly if the figures stack up for you.
And, of course, you do those figures before you incur any costs. If you’re not comfortable doing so, don’t shelve the idea; instead put the work into the hands of a broker. That’s what they are paid to do. Just be sure they can access the mortgage rate you are targeting.
Even if you are not prepared to take the step of moving your mortgage, you can still save money by looking at your mortgage protection policy. This is an insurance policy that your mortgage lender will have insisted on you taking out with your home loan. Essentially, it guarantees to repay the debt outstanding should the homeowner die. It normally pays on the first death, where there are two or more owners, but you’d need to check the small print.
The key thing is that most people do not shop around when buying this. So preoccupied are they with sorting out the mortgage, they generally just agree to take the insurance policy from the same provider or whomever the lender does business with. Invariably this will be noticeably more expensive than the rates available in the open market.
Shop around and when you find the best deal, run it past your lender for peace of mind that it meets the conditions of your loan – in all bar exceptional circumstances, it will. You can save close to half your monthly mortgage protection premium for just a few minutes’ work.
Certain other bills are even easier. Challenging the premium offered by your home or motor insurer is a no-brainer. The thing that catches people out is long-fingering action. They get their notice of renewal, leave it to one side with every good intention of coming back to in only to find that the policy is now within hours of expiring and you have no time to do anything except hit “accept”.
We all know when our policies are up – or we can easily check. Mark some time in your diary a month ahead and just make a round of calls or a run through the company websites. It takes no more than an hour to hit the entire market and they will all come back to you, giving you an array of options, many of which are likely to be less than you are paying currently.
Energy bills
Equally easy is sorting out your energy bills. There are a number of price comparison websites out there – bonkers.ie and switcher.ie are two fairly well known ones – that will do the heavy lifting for you. You can put in your specific details or just accept you are an average user and they will tell you who offers the best value at that time on that basis.
Might prices go lower still? Sure they may but these things tend to go in cycles: once one provider cuts (or raises) their prices, the other main providers follow. And just because you switch supplier and are locked to them for a year, your price is not fixed.
Just as people signed up to best rates on the way up only to find prices rising during their contract period, the same will likely happen as prices fall – as long as you do not lock into a 12-month fixed price rate such as that offered by new player, Yuno.
Price comparison websites can also help with areas like phone, TV and broadband.
Health insurance
Some things are more complex. You would be forgiven for suspecting the blizzard of different private health insurance plans from just three providers are designed specifically to bamboozle customers and deter anyone from changing off older policies that are generally more profitable for the providers.
Working your way through the sheer number of options can be daunting, though the Health Insurance Authority website does offer a policy comparison tool that might help narrow down your choices to something more manageable. People do prioritise health and want to ensure they are covered but sticking with one policy over 15 or 20 years as happens in the Irish system means you are likely to be missing out on cost savings and more modern healthcare features.
Banking
In a different way, switching banks can also be intimidating. While there can be differences in fees and charges, the sheer work involved in ensuring you have covered all monthly and annual direct debit payments can be a turn-off. And with only three players in the market, the benefits can be limited depending on how you use your accounts.
But there is no excuse for leaving any savings you have languishing in a demand deposit account earning zilch when there are now, finally, some more attractive options in the market. Dutch online bank Bunq is offering 2.46 per cent on instant access savings, the first €100,000 of which are protected under the Dutch deposit guarantee scheme.
That’s 10 times the most attractive demand deposit rate available from Ireland’s big three banks. But even there, Bank of Ireland now offers 2 per cent on money you are prepared to leave with them for a year, or 1.5 per cent (annualised) for a six-month deposit.
If you do only one thing this spring, get those savings somewhere that will earn you some return. Over 90 per cent of savings in Irish banks are earning nothing and even as the banks themselves comment on how the reluctance of customers to move to higher rates is boosting their profits, only a small fraction of people are taking action. Make sure you are one of those.
And never forget, switching is not just about price. You can move for a better service or even better customer support. Having had cause to deal with providers across a range of financial and utility services recently, I can assure you better service can make all the difference especially when there is not a huge gap in prices.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
