The itch to switch: How consumers are changing the mortgage landscape

In Ireland the battle for mortgage switchers is well under way, writes Niall Corrigan from EY Ireland.

The onset of inflation, and greater adoption of digital during the pandemic years, Irish consumers are actively seeking out better value online.  This behavioural shift sees consumers actively reviewing all expenses – from their daily coffee to their weekly grocery shop through to their annual utilities contract. 

Likewise, consumer expectations of brands have changed and continues to evolve. They are looking for simple, seamless experiences where they can easily access the product or service quickly.  They expect this from both those small, lower value purchases to the more considered higher value transactions such as purchasing a home.

“In 2022, switching approvals accounted for 18% share of the market between Jan-Apr, rising to 23% in May before jumping considerably to 30% by June”

The mortgage market in Ireland has changed considerably over the last 20 years. With the recent exit of KBC and Ulster Bank, competition has reduced significantly. 

Expansion of non-banking lenders and an increase in broker usage is driving the incumbents to rethink how they serve their customers.

A different customer profile

With considerable shifts in the Irish housing market, the customer profile of those drawing down mortgages is markedly different from the typical borrower of the early 2000s.  First-Time Buyers (FTB) are now older, with the average age of a FTB increasing by 5 years, earning more and increasingly likely to be buying a ‘a home for life’. 

“With switching becoming more habitual it poses a question to those operating in banking:  Continue chasing new customers or spend more time looking after the current ones? ”

Fewer people are moving homes (movers) then what we were seeing a few years ago– the mover share of market has fallen from 33% of approvals in 2015 to 21% in the first half of 2022.  There is also a clear trend toward joint borrowing for homeowners – this has moved from 61% in 2010 to 76% in 2019, with joint purchases allowing buyers to access higher property prices.

Switching in the marketplace is not a new phenomenon – it has been a trend in the utilities market for almost two decades with 1 in 5 customers switching their utilities each year.  Current cost increases have accelerated this and there’s no doubt customers will continue to switch in their pursuit of better value.  Online research and cost comparison websites make this a relatively hassle-free process.

However, for many years this didn’t extend to mortgages; there was a state of inertia with low levels of switching in the Irish market. The exit of Ulster Bank and KBC has disrupted this status quo, requiring switch of more than 1.2m current and deposit accounts.  Customers are now more informed, better awareness and control when it comes to who they want to bank with and how they want to do it. This renewed sense of empowerment is now extending to their choice of mortgage provider.  Borrowers want better value. 

Customers also tended to stay with their provider for the duration of their mortgage. This is no longer the case. Switching approvals have increased substantially from 5% in 2015 to 12% in 2019 to 22% in H1 2022. In 2022, switching approvals accounted for 18% share of the market between Jan-Apr, rising to 23% in May before jumping considerably to 30% by June.  Consumer awareness is not the only factor behind the dramatic increase in mortgage switching. 

Factors at play:

Increased price sensitivity heightened by inflation

In Ireland, the increased pricing because of inflation is heightening consumers’ drive to seek out better value.  They no longer discriminate between small and large purchases. They are more aware of what’s available to them and who is offering the best rates and are actively managing where their money goes.

Lack of loyalty driven by poor mortgage retention strategies

Historically financial services firms tended to focus more on acquisition rather than retention.  With large scale advertising campaigns, continued cashback incentives, and an enhanced customer service offering, brands are clearly in acquisition mode.  Retaining customers tends to be more reactive in terms of customer service, with most customer engagement taking place during the onboarding process and again when the mortgage term comes to an end.  This creates low levels of loyalty amongst the customer base.

Increased broker attention on switchers

As a channel, brokers are continuing to grow their market share – in the first quarter of 2022, 44.6% of all mortgages written were originated by brokers.  They also hold a substantial share of the switcher segment, which has been growing significantly year-on year.

Brokers often offer a holistic view of the market giving customers a variety of mortgage options with some mortgage rates exclusively available through them.  It’s perceived as a simple, convenient, and easy onboarding journey, with an ‘always on’ personalized service.  Brokers build relationships with customers at a more a human level, which further enhances the overall experience.  Exactly what today’s customer wants.

Non-bank lenders are gaining market share

Non-bank lenders (NBLs) have also expanded rapidly in Ireland; their market share has grown from 3% to by 13% in the last 3 years, and when it comes to switchers, they have captured 29% of the market.  They offer attractive rates, which is particularly appealing in this price-conscious market and customers are always open to newer less established brands if they’re offering the right terms.

Less movement in the housing market

With rising costs and the ongoing supply issue, the housing market situation in Ireland is not enticing homeowners to move or buy new property.  Instead, they are looking to get the most value from their mortgage provider. Customers are increasingly looking to fund home improvements including green initiatives or leveraging options like equity release that capitalise on property price increases.  It’s about deriving the most value from what you currently have, rather than starting the whole process again with a new house purchase.

Mortgage provider customer engagement model: Chase or keep?

There is a different mindset between acquisition and retention, which impacts organisational strategies, budgets, and transformation programmes. 

How customers are engaged between sales and service is very different for example varying call centre wait times depending on whether you’re an existing customer or trying to buy a service.

When it comes to cost-effectiveness, retaining an existing mortgage customer beyond their initial term could yield more return than the cost involved in signing up a new customer. 

There is a wealth of data available for existing customers so taking a more personalised approach with dynamic pricing surely represents a significant retention opportunity.    With switching becoming more habitual it poses a question to those operating in banking:  continue chasing new customers or spend more time looking after the current ones? 

The Irish mortgage model has significantly changed and will continue to do so for the foreseeable future.  Customer switching is not going away anytime soon and is becoming easier with digital tools, greater accessibility and the portability of data.  If mortgage providers focus more on retention, they can tap into this and unlock notable gains.

In Ireland the battle for switchers is well under way.  We’ll have to see whether the recent rate increases hinder or expedite this but several factors now hold true for future mortgage customers; they have a heightened awareness of value, are less loyal to traditional brands and are increasingly flexing their digitally savviness post pandemic.

Niall Corrigan
Niall Corrigan is a Partner in EY Ireland’s Financial Services Consulting leading its Business & Digital Transformation team. He has worked in a strategic advisory and transformation delivery capacity across Financial Services and other industries over the last 20 years. He has also been involved in a number of start-ups as an employee, an owner, an advisor and a mentor. With extensive experience designing and delivering complex programmes to drive market growth and internal efficiencies, he is particularly skilled in the areas of customer experience, operational excellence and digital technology enablement. A regular media contributor, Niall has contributed to business journals, mainstream press and national radio.



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