Wednesday 17 July 2019

An Post to offer borrowers cheaper mortgages

Rates to be 1pc lower than banks

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Samantha McCaughren

Samantha McCaughren

The biggest shake-up of the mortgage market for almost 20 years is on the way with An Post set to offer home-loans and pledging it will undercut current market rates by 1pc.

The mortgages will be available to both new customers and, crucially, switchers seeking a move from their existing mortgage provider to cut their monthly payments.

Latest Central Bank figures show that the average interest rate on new mortgages issued in July was 3.21pc - among the highest in the eurozone where the average is just 1.77pc

The Sunday Independent can reveal that the board of An Post has approved a new financial services strategy which would see the semi-state offering mortgages with a joint venture partner next year.

The key part of its mortgage strategy is to offer substantially cheaper rates in order to woo mortgage customers from the country's two pillar banks, AIB and Bank of Ireland.

Undercutting competitors by 1pc would be a huge incentive, not just for those trying to get on the property ladder for the first time but also for existing mortgage holders.

It's potentially the biggest innovation in the mortgage market here since Bank of Scotland introduced European Central Bank tracker mortgages to the Irish market in 2001.

A reduction of 1pc in a homeowner's mortgage rate equates to €55 a month for each €100,000 borrowed. Over the lifetime of a mortgage, this would be a saving of €47,000 for a €250,000 mortgage over 30 years.

The mortgage offer will be among a set of new products that will include credit cards, personal loans and fintech (Financial Technology) services offered via partnerships under a new brand, An Post Money.

Debbie Byrne, managing director of An Post Retail, said that it was not yet seeking a full banking licence but would not rule it out in the future. She said An Post's plan is to offer the most competitive mortgage rates in the market.

It would aim "to be 1pc lower than other providers, bringing Irish rates more in line with rates offered by UK and other providers [in Europe]", she added. She also expects Irish banks to fight back: "They are not going to let us have a free run at it."

An Post plans to issue a document setting out its requirements, known as a Request for Proposals, for mortgages in December. "We would look to do a joint venture with a partner using their capability," said Ms Byrne.

"The rates here are less competitive than other parts of Europe, largely driven by legacy issues such as tracker mortgages and the heavy levels of defaulted loans. The advantage for us, as a new entrant into the market, is we don't have those legacy issues. And we would be able to bring more competitive products with lower rates. We have had several meetings with the Department of Finance and they definitely have a mandate to stimulate competition in the banking market."

She said that using An Post's infrastructure would make post offices around the country more viable. "It's a win-win for everyone."

An Post is confident a partner can be selected by late Spring next year. "We will cast the net abroad. Irish banks are also welcome to submit proposals but we have also looked at international banks that hold licences here," she said.

"We aim to be in the marketing and piloting phase towards the end of next year."

She added it would then target the peak house-buying period in spring 2020. Ms Byrne added that there was a window of opportunity to take market share from the banks: "There is low confidence and trust in the banks and they are still managing through their back book issues.

"The An Post brand is strong and trusted and there is the branch network. We would need to be able to serve people online but also in a face-to-face environment."

An Post Money will launch next spring and has already signed a deal with Avantcard, the former MBNA business, for credit cards and loans ranging from €5,000 to €75,000. It will also seek partners for fintech services and lending to small and medium-sized business.

Financial sources said the entry of An Post into the market is significant but not without challenges as competition intensifies among banks to attract prime borrowers.

However, adviser Michael Dowling, of Dowling Financial, said a new entrant coming in at least half a percentage point lower than existing lenders would win business.

It is not An Post's first foray into banking. It previously formed Postbank, a joint venture with Belgian bank Fortis. But it was badly timed and began to roll out just as the economy crashed. Postbank closed in 2010 following the collapse of Fortis.

Sunday Independent

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