Mortgage holders get rate cut after threats to switch
MORTGAGE holders who threaten to switch to another lender are having their variable rate cut by their bank to get them to stay, the Irish Independent has learned.
Those most likely to seek to move their mortgage are existing customers of banks where variable rates were reduced for new customers, but not for existing customers.
Customers at AIB and Bank of Ireland have secured better deals by threatening to switch.
Financial experts said that increasing numbers of people who are not in negative equity and have a good payment history are now telling their bank they are switching to a cheaper lender.
So far, only small numbers have benefited from the new-found eagerness of banks to cut their rates to retain customers, but experts said the move had the potential to put downward pressure on mortgage rates.
A homeowner who still owes €200,000 over 25 years and moves from the standard variable rate of 4.5pc with one bank to another with a variable of 3.55pc, would see monthly payments come down by €100.
Over the remaining life of the loan they could save €30,000 in total.
Once a requisition for the home's deeds from a solicitor preparing the conveyancing for a mortgage switch goes into a bank, officials realise they are going to lose the customer.
Experts said this tended to trigger a response from the bank. Officials then contact the customer and start offering them a much lower interest rate to stop them switching.
Founder of Askaboutmoney.com Brendan Burgess said variable rates here were among the highest in the eurozone and there was plenty of scope for banks to cut them, especially when they feared losing a profitable customer.
He called on all banks to reduce their variable rates by at least 1pc.
Some 320,000 people are on variable rates, which are four times higher than tracker rates.
Michael Dowling of the Independent Mortgage Advisors Federation said: "There is evidence that this is starting to happen where a borrower's solicitor requests the deeds to a home and then the bank rings the borrower and is prepared to negotiate."
He said people who originally took out a 90pc loan, where they had a 10pc deposit, but are now in a situation where they only owe 60pc of the property's value, are most likely to secure a lower interest rate.
He said Bank of Ireland was the most likely bank to cut a deal with existing customers.
Bank of Ireland had 22,000 customers on high variable rates, he said. AIB and EBS were also willing to negotiate to stop customers moving from them.
But KBC and Permanent TSB were reluctant to do deals, he said.
Up to recently, tiny numbers of people switched their mortgages, but the new Central Bank lending limits have meant there are smaller numbers of first-time buyers now able to qualify for large enough mortgages to buy in the current market.
This has prompted banks to chase switchers.
KBC is paying €1,000 towards the legal fees for switchers and half of the first year's insurance premium.
Permanent TSB also pays €1,000 towards legal fees.
People can only switch if they are in positive equity - meaning they owe less than the property is worth - and if they have never missed payments.
Bank of Ireland, KBC and Permanent TSB recently cut their main variable rates for new customers, but not for existing customers.
Bank of Ireland had no comment when asked about cutting rates for switchers.
An AIB spokeswoman said: "AIB and EBS do not comment on individual customer cases.
"However, the terms and conditions for both AIB and EBS do facilitate a customer moving between rate bands under certain conditions during the lifetime of a mortgage."