Saturday 10 December 2016

Bank accused of 'coercing' thousands of borrowers

Published 18/11/2016 | 02:30

Bank of Ireland, along with the rest of the Irish banks, has seen its profits hit as a result of the huge numbers of customers who took out tracker mortgages in the run-up to the crash (Stock picture)
Bank of Ireland, along with the rest of the Irish banks, has seen its profits hit as a result of the huge numbers of customers who took out tracker mortgages in the run-up to the crash (Stock picture)

The country's biggest bank has admitted that variable rates are being kept deliberately high for tens of thousands of mortgage customers - because it would prefer them to take out fixed- rate loans.

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Bank of Ireland has been accused of "coercing" customers into fixing, following the admission by its chief executive Richie Boucher.

Mr Boucher told a Dáil committee that his bank wanted more people to take fixed rates as a protection against future interest rate rises.

He told TDs and senators that its variable-rate home loans were being kept deliberately high, in a bid to encourage customers to switch to fixed-rate deals.

Mortgage costs in Ireland are the highest in the eurozone and there has been mounting political pressure to bring down variable rates.

But Mr Boucher said: "We are deliberately incentivising customers to switch to a fixed rate."

The bank's standard variable rate is the highest in the market.

Depending on their loan to value, Bank of Ireland customers can pay up to 4.5pc interest for variable-rate loans, compared with 3.5pc for fixed-term loans. On a €300,000 mortgage, that adds up to more than €200 a month.

Bank of Ireland, along with AIB, dominates the Irish mortgage market. Almost one in three of the bank's mortgage customers has a variable rate loan - adding up to hundreds of thousands of households across the country.

Mr Boucher said there was nothing to stop existing customers leaving higher-cost variable-rate mortgages.

"Every one of our existing customers can avail of a fixed rate and every one of our existing customers could save money by going to a fixed rate," he said. "If it was my decision I would do it."

However, financial adviser Michael Dowling, who chairs the mortgage committee at the Irish Brokers' Association, said the penal standard variable rate offered by Bank of Ireland meant customers were left with no choice but to opt for the lender's preferred fixed-rate deals.

Customers were being "coerced" to borrow at fixed rates when the choice of home loans should be at borrowers' discretion, he said. Other lenders were able to offer fixed-term mortgages without charging as big a premium for variable loans, Mr Dowling added.

But at the Oireachtas Committee, Mr Boucher insisted that fixed-rate mortgages - where the interest rate doesn't change even when official interest rates do - were better for the market overall.

"We have a very clear strategy, we have reflected on the lessons of the past and as a bank we do not take interest rate risk," Mr Boucher said.

Bank of Ireland, along with the rest of the Irish banks, has seen its profits hit as a result of the huge numbers of customers who took out tracker mortgages in the run-up to the crash.

Read More: Is Richie Boucher a mortgage bully or a borrower's best pal?

With interest rates stuck at all-time lows as a result of the European Central Bank's efforts to kick-start the economy, those tracker customers have enjoyed years of below-cost loans, creating a huge headache for lenders.

For new mortgages, the bank said that more than 70pc of customers were now opting to take out fixed-term loans.

In relation to the strict Central Bank mortgage rules, the bulk of exceptions being granted to buyers were given to Bank of Ireland customers including first-time buyers and buy-to-let investors, Mr Boucher said.

In relation to mortgage arrears, he said repossessions would rise, but 2017 would not see a sharp spike. "I think it'll be over a long, drawn-out period," he added.

Irish Independent

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