Thursday 29 June 2017

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

Bank of Ireland chief executive Richie Boucher
Bank of Ireland chief executive Richie Boucher
Donal O'Donovan

Donal O'Donovan

Is Bank of Ireland chief Richie Boucher bullying homeowners into taking the mortgage deals that suit his bank, or genuinely trying to reshape the market here to reflect the lessons of the crash?

Probably a bit of both. The famously combative bank chief certainly took the wind out of Fianna Fáil TD Michael McGrath's sails at the Finance Committee yesterday.

McGrath has been an outspoken champion of Irish variable-rate borrowers who have been paying the highest borrowing costs in Europe.

But Boucher's candid admission that he's keeping those prices high in order to get customers off variable rates caught McGrath and his colleagues off guard.

In Leinster House, Boucher made a good case that variable rates, by leaving banks and borrowers vulnerable to changes in the interest rate environment, add an unnecessary element of risk that he'd rather do without.

Fixing borrowers on a single rate over a fixed period means the borrower and the bank have better certainty that the mortgage is going to be affordable.

For the bank, fixed rates mitigate any repeat of the tracker loans experience, a financial disaster for all lenders whose lucky customers have enjoyed record low borrowing rates protected by rock solid contracts.

Fixed-rate mortgages are common on the Continent, one reason why borrowing costs are typically lower there.

So why are large numbers of Bank of Ireland customers - the bank won't say how many - choosing to remain in more costly variable rates even though its free and easy to switch? It may reflect suspicion on the part of customers - 'if its good for the bank, it must be bad for me' - but in many cases people stick with more expensive loans because of inertia.

Even so, there are more solid reasons why some borrowers prefer variable loans, as long as the pricing is fair. That includes being able to overpay or even pay off the whole debt early if they happen to come into money. With a fixed-rate deal, doing that will incur a penalty.

Until that changes, Boucher's insistence that he's only trying to incentivise borrowers to take the more sensible option will ring a bit hollow. Bank of Ireland's pricing also discourages customers from fixing over the really long term, which jars with the rhetoric from Boucher yesterday.

A 10-year fixed-rate mortgage from Bank of Ireland can come with a hefty interest rate of 4.2pc, not far from the variable rate the bank says it doesn't want customers to take.

Irish Independent

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