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Why fall of Halifax will spell mortgage misery for everyone

Yesterday, just four years after it launched its Irish branch network, Halifax threw in the towel. It will be closing its 44 branches from May of this year with the loss of 750 jobs.

So why should the decision of Halifax, which has less than 10pc of the market, to close its Irish operation matter? Surely Halifax was never more than a bit player in the crowded Irish banking market?

Wrong. For more than a decade Halifax and Bank of Scotland (Ireland), as it was previously known, has been at the forefront of efforts to introduce greater competition to the duopolistic Irish banking market.


Remember in 1999 how it was BoS(I) which cracked the Irish mortgage cartel.

When it announced that it was reducing its mortgage margin to just 1pc, half of what the other banks were then charging, its competitors were quickly forced to follow suit. Overnight, Ireland went from having some of the dearest home loans in Europe to some of the cheapest.

That's what competition does. As the new kid on the block, BoS(I) was forced to cut its prices in order to attract business from the established players.

Then, in 2005, BoS(I) purchased the ESB's retail network and converted them into bank branches, which opened for business the following year. This was the first new Irish bank branch network to be launched in more than a century.

Rebranded Halifax aggressively targeted current account, credit card and mortgage business. Once again, the customer benefited.

The future of Halifax in the Irish market has been in doubt ever since the dramatic events of September 2008. As rumours about the solvency its parent company, UK bank HBOS, reached fever pitch, the British government was forced to arrange a shotgun marriage between HBOS and Lloyds.

With more than enough problems in its home market Lloyds Banking Group, as the merged bank is now known, has been busily cutting back on its overseas operations. Halifax's Irish operation came with a hair's breadth of being shut last summer. Yesterday its luck finally ran out.

So why should customers worry about the decision of a British bank to close its small, under-performing Irish operation?

Firstly, as mentioned earlier, BoS(I) and Halifax have been at the forefront of efforts to introduce greater competition into the market.

Secondly, Halifax isn't the only bank to be cutting back. In December NIB, which last week announced 2009 loan losses of more than €700m, announced that it was closing half of its Irish branch network.

Among the Irish-owned banks it is no secret that Irish Life & Permanent would gladly give away its Permanent TSB banking operation to anyone willing to take it off its hands.

As the fringe players either cut back on their operations or pull out of the Irish banking market altogether, customers are thrown on the tender mercies of AIB and Bank of Ireland with Ulster Bank providing what little that passes for competition.

We are already beginning to see the results of the this reduction in competition with Permanent TSB having recently jacked up its variable mortgage rate by 0.5pc. This came on top of a previous 0.5pc increase in the Permo's mortgage rate last July.


While the other Irish-owned banks have held back from increasing their mortgage rates any reprieve for homeowners is likely to be purely temporary.

With the foreign banks effectively out of the Irish market, the other domestic banks are only waiting to hit their customers with higher rates as soon as NAMA is in action.

Having already forked out a fortune as taxpayers to bail out the Irish banks, we are now going to be hit with a double whammy as those self-same banks return the compliment by screwing us with higher interest rates.