Mortgage switching through the turning of the interest rate cycle

Mortgage switching, and the choice of contract type, can have important implications for borrower resilience to interest rate movements. In this Note, we focus on switching in the Irish mortgage market in the run-up to (August 2018-June 2022) and early phase of the European Central Bank’s (ECB) contractionary monetary policy from July to December 2022. Using the Central Credit Register (CCR), we find that mortgage switching had been steadily increasing in the period of falling interest rates since 2018 but grew particularly quickly during the early months of the ECB’s monetary policy tightening cycle. The increase in switching was primarily to and from fixed-rate contracts, and remained strong even as the immediate short-term monetary gains from switching were reducing, signifying borrower’s forward-looking choices in seeking to avoid future increases in monthly repayments. We also find that non-banks were particularly important in leading interest rates downwards from 2019 to 2022, a trend which reversed abruptly once ECB policy rates rose. In terms of borrowers’ financial outcomes, we find interest rate gains from mortgage switching of up to 1.3 pp, equating to annual savings worth €2,000 on average.