Thursday 29 September 2016

Banks slash interest rates on mortgages in fear of new lender Frank Money

Published 17/05/2016 | 02:30

Brendan Burgess: risk of cuts being limited to new customers
Brendan Burgess: risk of cuts being limited to new customers

The expected approval of a new mortgage lender in the market is prompting existing banks to engage in a variable-rate-cutting frenzy.

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Frank Money is set to undercut existing lenders, prompting more rate reductions by banks But some mortgage holders are set to miss out on the lower rates.

EBS customers are not expected to benefit to the same extent as those with its parent company AIB, while thousands of others who were encouraged to fix their rates by their bank will not gain from lower variable rates. Some banks are restricting reduced lower rates to new customers only.

However, there is now an expectation that AIB will move again to cut its variable rate for new and existing borrowers to take it below 3pc.

It said last week that its variable rate for new and existing mortgage holders would fall to 3.4pc in July. KBC also cut variable rates for new borrowers and reduced fixed rates.

Brendan Burgess, of the Fair Mortgage Rates Campaign, said banks were pre-empting a move into the market of the new lender. Frank Money is aiming to have mortgage rates of 2.8pc - some 0.6pc lower than the new AIB variable rate, which will be the lowest in the market.

The new lender is awaiting approval from the Central Bank to enter the mortgage market and will be targeting switchers and new borrowers once it gets authorisation.

Mr Burgess said: "With Frank Money about to get approved, it highlights the huge profits to be made from variable rates. This may well be prompting banks into pre-emptive action."

He said there was a risk that some banks were restricting rate cuts to new customers. KBC Bank cut variable rates for new customers last week, but not for existing mortgage holders.

Mr Burgess said: "Those who can't switch, because they are in negative equity or in arrears, will continue to get fleeced."

AIB is expected to pass on the 0.25pc reduction to its Haven customers. But 80,000 existing EBS mortgage holders look set to benefit from only a reduced cut.

AIB boss Bernard Byrne told staff in a memo that EBS was set to have a different offering from AIB. This is expected to be along the lines of matching Bank of Ireland and Permanent TSB's popular cash-back offer, representing 2pc of the mortgage value.

It is understood that no final decision has been made on an EBS rate cut, but the reduction could be just 0.15pc. In contrast, another AIB rate cut is likely before the end of the summer if others move, as the State-owned bank is keen to have the lowest variable rate in the market.

Michael Dowling, chairman of the Irish Brokers' Association mortgage committee, said Bank of Ireland, Ulster Bank and Permanent TSB were now under huge pressure as their variable rates were way above those at AIB.

Bank of Ireland was likely to reduce variable rates for new customers only, after pursuing a policy of encouraging customers to fix their rate.

"Bank of Ireland does not seem to case about existing customers," he said. But the bank's retention unit was offering lower rates to customers where solicitors had requested deeds as part of a switcher move.

"Permanent TSB is under huge pressure to reduce its rates. Ulster Bank is competing on fixed rates and does not appear to have made a decision to reduce variable rates," Mr Dowling said.

Mortgage broker Karl Deeter said the big winners would be those in a position to switch, as banks were finding that Central Bank lending limits meant they are restricted to trying to gain market share by going after existing mortgage holders.

He added: "It is a going to be a good year for borrowers. Wholesale interest rates will stay low and competition means banks will lower rates."

Irish Independent

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