Wednesday 26 October 2016

Don't get lured into a fixed-rate trap by your 'friendly' bank

Published 17/05/2015 | 02:30

CAMPAIGN: The IMHO, led by David Hall, is aiming to get up to 25,000 people to sign up
CAMPAIGN: The IMHO, led by David Hall, is aiming to get up to 25,000 people to sign up

Be careful not be to be lured into a trap by your bank. Because that is what could easily happen if you are one of the thousands of people being gouged by your lender on a variable rate and you get on to the bank seeking deal.

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The bank is likely to respond to this by offering to put you on one of its lower fixed rates.

When fixed rates are lower than variable rates it is a sure sign that variable rates are set to fall. And that is the situation at the moment.

Rather than responding to the clamour for lower variable rates, which are among the highest in the eurozone, banks have cut fixed rates.

This is part of a customer-retention strategy. If you threaten to move your mortgage to a cheaper lender, the first thing you bank will do is try to encourage you to lock into a fixed rate.

But even though the fixed rates are often lower than variables, they are still very poor value when compared with tracker rates here, or fixed rates in the rest of the eurozone.

So do not be tempted. Banks here are trying to entrap people by pricing fixed rates a notch or two below their variable rates. But the smart money is on variable rates coming down in the months ahead.

To ensure this happens, you should consider taking on your bank and actually moving your mortgage to a lender with a lower variable rate.

The 300,000 people on variable rates are being mercilessly ripped off by their banks, never mind what the Central Bank says about high variable rates being justified because of tracker losses.

The Central Bank has proved time and again that it does not have the interests of bank customers at heart. It is in danger of being seen as the Dame Street head office of our banks, and not just their regulator.

So don't expect any help from the Central Bank.

But the threat of losing of thousands of customers will be enough to force lenders to cut their rates.

Around 150,000 of those with a variable rate are in positive equity.

If you are one of those on a variable rate of 4.5pc, you could get a rate as low as 3.6pc by moving to KBC Bank. That rate applies to those borrowing less than 60pc of the value of the property.

Even better rates may be available if enough people sign up for a huge switching campaign.

The Irish Mortgage Holders' Organisation (IMHO) is launching just such a campaign, which will see the organisation do the switching for people who are being overcharged for their variable rates, in a move that would overcome consumer inertia.

The IMHO is aiming to get up to 25,000 people to sign up by teaming up with the One Big Switch Campaign, a group that has already done deals with electricity providers and health insurers for those who register with it.

If you are one of those being gouged by your bank, you really should sign up when the campaign is launched in the coming weeks.

Twitter: @CWeston_Indo

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