Thousands of mortgage holders on variable rates could be paying over 2.25 percentage points more than necessary, according to the latest mortgage switching index from Doddl.ie.

While fixed rates have come down significantly over the past 18 months, variable rates have remained stubbornly high, and despite variable rates of below three per cent becoming available recently, many borrowers remain on legacy variable products of up to 5.25 per cent.

In all, almost 100,000 homeowners representing 14 per cent of mortgages are on variable rates, the latest Central Bank data shows.

“Banks have large volumes of existing mortgage customers sitting on these high variable rates and to reduce them would mean large back book repricing which would be costly," said Martina Hennessy, chief executive of Doddl.ie.

“Lenders are banking on customer apathy. Unless more borrowers actively review and switch, there’s no pressure to bring these uncompetitive rates down and we will struggle with pricing discipline in the Irish market.”

The average mortgage drawdown stands at €346.842, up over €112,000 from Q2 in 2022 as borrowing levels have risen to meet higher property prices.

The index for Q2 shows that mortgage switchers can now save more than double the annual savings available five years ago. Doddl.ie estimates that switchers can save an average of €7,505, up from €3,349 in 2020.

The index is published quarterly and tracks the savings available to mortgage holders in Ireland through switching.

It is based on the average mortgage drawn down in the quarter and the differential between the highest and lowest mortgage interest rates available.

In June, the lowest rate on the market dropped below three per cent (2.98 per cent) for the first time since 2022.

“The increase in savings for switchers is the direct result of larger mortgages but also significant interest rate spreads,” said Hennessy.

“This is leading to a resurgence in mortgage switching. However, there still remains a large cohort of homeowners sitting on uncompetitive rates.

“With rates falling, larger loans being drawn down, and new flexible switching options available, apathy can cost borrowers thousands.”

The latest Banking and Payments Federation Ireland (BPFI) data shows switching rose 67 per cent in volume and 91 per cent in value year-on-year, and that the average value of switcher mortgages has increased to nearly €282,000 from €235,000 five years ago.

Meanwhile, top-up mortgages have increased by 25 per cent, with homeowners choosing to stay put due to a shortage of homes.

“We are increasingly seeing clients choose to remain in their current homes and carry out works due to a shortage of larger family homes in the market,” said Hennessy.

She highlighted the arrival of more flexible mortgage products, including Avant Money's Flex mortgage (2.98 per cent), available across all BER ratings and benchmarked to the 12-month Euribor rate.

Nua Money’s new equity-release switching option also offers homeowners a way to access funds without moving.

(Pic: Getty Images)