Monday 24 October 2016

Taste of Pepper is welcome - but it's a pity rates are not lower

Published 21/01/2016 | 02:30

First time buyers
First time buyers

It is not quite the mortgage war we were hoping for, but it will do for now. The new lender with the funny name, Pepper, will be welcomed by potential homebuyers and existing mortgage holders who are stuck on rip-off variable rates.

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It is the first time we have had a new lender in this market since the ill-fated launch of Bank of Scotland/Halifax into the mortgage market here in 2000. That ended in tears, with the bank pulling out a decade later.

But the pity of it is that Pepper, an Australian lender with 400 people employed here, is not challenging the existing banks with more competitive rates.

Some of the Pepper rates for first-time buyers and switchers are a good match for the existing players, but they are not lower.

Its rates for buy-to-let investors are the most competitive in the market in almost all categories.

Like most lenders, Pepper will have lower rates for those with more equity in the property. And it will be subject to the Central Bank rules on the sizes of deposits and the amount of income that can be used to determine how much can be borrowed.

The pity is that Pepper did not come in with much lower rates. Mortgage rates here are up to 2pc higher than in the rest of the eurozone.

A typical new Irish consumer with a €200,000 mortgage is paying around €3,500 more than a German consumer. And the market is dominated by the big two - AIB and Bank of Ireland. Between them, they are issuing two out of three new mortgages.

Despite pressure from Finance Minister Michael Noonan, banks have been slow to reduce their sky-high variable rates for existing borrowers.

Now, with a new option available to consumers, the barely-alive switcher market could be revived.

But the sheer fact that a new lender has entered this market for the first time in ages will put pressure on the others and should in time lead to more keenly priced mortgage rates.

Bank of Ireland is not taking the challenge sitting down. Already sweeping up market share with its 2pc cash-back offer, the bank yesterday said it would give those saving for a house deposit a 10pc top-up on those savings.

Irish Independent

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