Thousands of homeowners will be charged almost €2,000 more for their mortgages than new housebuyers as banks chase lucrative new business
Lenders have slashed interest rates for new home loans but established customers
continue to pay some of the highest rates in the eurozone.
Permanent TSB and Bank of Ireland – chasing profitable business from first-time buyers – have both lowered their rates for new customers in the mortgage price war.
But their refusal to cut variable home-loan rates for existing customers means thousands of families will lose out – and will end up paying almost €2,000 a year more than new borrowers.
It means that a three-tier mortgage market is now emerging:
• Those lucky enough to be on a tracker rate are paying four times less in interest than those on variable rates;
• New buyers are set to benefit from a price war, which has led to lending rate cuts;
• But existing variable rate borrowers have not seen major reductions on rates.
There are around 320,000 existing mortgage holders on variable rates.
AIB cut rates for both 146,000 existing customers and new borrowers from last month, but Bank of Ireland and Permanent TSB have decided to
cut their variable rates for new customers only.
Thousands of homeowners are now trapped with their lenders and vulnerable to higher rates.
The latest reductions will mean most existing Permanent TSB customers will pay €1,000 a year more than a customer on the bank's new lowest rate, assuming a €200,000 loan.
The gap will be similar, but slightly lower, at Bank of Ireland.
Permanent TSB said its rate reductions applied to some existing customers who took out mortgages since 2013, when it introduced what it called managed variable rates.
However, thousands of homeowners are trapped with their existing lenders as the switcher market has barely been operating.
High levels of negative equity, where the mortgage is more than the value of the property, means that switching levels are tiny at most banks.
Consumer campaigner Brendan Burgess called on borrowers to avoid doing business with Bank of Ireland or Permanent TSB. He accused them of discriminating against existing customers.
Mr Burgess said some new borrowers would now be paying up to €1,800 less a year than existing borrowers.
"These existing customers should show their annoyance by moving to either AIB or KBC. A borrower whose loan is less than 60pc of the value of their home can switch from Permanent TSB's 4.5pc to KBC at 3.6pc.
"That is a cut of €1,800 a year, every year, on a mortgage of €200,000."
He called on the Central Bank to amend the Consumer Protection Code to ban banks discriminating against different customer groups.
The Irish Brokers Association (IBA) also said that banks were mistreating existing mortgage holders.
Ciaran Phelan of the IBA said: "Existing variable rate mortgage holders have been gouged for years now to boost the bank's profitability."
Fianna Fail Finance spokesman Michael McGrath claimed the rate reductions for new borrowers were deeply unfair, as they will do nothing to address the treatment of banks' existing variable rate customers.
And he pointed out that despite the latest reductions, Ireland still had some of the highest variable rates in the 19-member eurozone.
However, the president of the European Central Bank Mario Draghi has refused to take responsibility for the multi-tier mortgage market here in Ireland.
"The ECB does not interfere with the normal activity of commercial banks in pricing loans," he has said.
This is despite Mr Draghi saying the ECB wanted banks to pass on cuts it was making in its key lending rate twice in 2014.
In a letter to Mr McGrath, the ECB boss said queries should be directed to the governor of the Irish Central Bank Patrick Honohan.
The Central Bank said it did not regulate interest rates, but regularly reviews the Consumer Protection Code.