Thousands at risk of rate hikes as AIB bars mortgage switchers
THOUSANDS of homeowners are effectively trapped with their existing lenders after the biggest bank in the country, AIB, admitted yesterday that it no longer accepts mortgage switchers.
Just two lenders will now accept switchers, leaving thousands of homeowners trapped and vulnerable to being hit with higher mortgage rates.
The AIB move is a huge blow to mortgage holders who are with Permanent TSB as it has increased its mortgage rates twice in the past six months, and those with Halifax, which is closing its retail operations here.
AIB has the lowest home-loan rates in the market, with a standard variable rate of as low as 2.25pc and a three-year fixed rate of 3.19pc.
In comparison, Bank of Scotland (Ireland)/Halifax has a three-year fixed rate of 7.25pc.
Permanent TSB shocked homeowners this month when it pushed up its standard variable rate for existing customers by 0.5pc.
Other lenders are now expected to follow the move by Permanent TSB.
Up to 350,000 mortgage holders have standard variable rates, which lenders are free to increase when they want. Some mortgage experts expect standard variable rates to rise by up to 1pc this year.
Frank Conway, director with the Irish Mortgage Corporation, said the switcher market was now effectively closed off to borrowers at the very time they needed it.
AIB admitted in a statement to the Irish Independent yesterday that it was no longer interested in switchers.
"We're very keen to talk to anyone -- especially first-time buyers -- who want to purchase a property.
"However, when we can use our resources to provide mortgages to customers who want to purchase property, rather than exchange loans, we're less inclined to use those resources to facilitate the replacement of a mortgage contract at one institution with a cheaper one at AIB."
The bank, which has so far received €3.5bn in funding from the State, said its priority was funding new buyers who borrow less than 92pc of the value of the house, and who show "a capacity to repay".
It is understood that AIB has promised the Government to fund first-time buyers, but the bank has not given any commitments to fund other types of mortgages. Because banks are chronically short of funds, the bank has decided not to finance switcher mortgages.
Just KBC Homeloans and EBS Building Society will now transact switcher mortgages, Mr Conway said. But these lenders have strict lending criteria making their switcher mortgages difficult to quality for. KBC will only accept switchers who are borrowing less than 80pc of the value of the home.
Bank of Ireland said it would accept a mortgage switch from people who were not customers only if they were borrowing less than half the value of the home.
However, managing director of Bank of Ireland Mortgages Brendan Nevin said the lender would loan up to 90pc of the value of the home to existing customers.
Three years ago at the height of the property boom, mortgage switchers were responsible for 40pc of the value of mortgage drawdowns. But switcher mortgages now represent 12pc of the market.
Banking sources said yesterday that switcher business was regarded as risky as people switching had not always being upfront about their financial position in the past and they often wanted to extend the term of the loan or consolidate other loans into the mortgage.