Bank of Ireland not prepared to play follow-the-leader

Bank of Ireland didn't do too well out of tracking other banks down the road of battling for market share during the boom, which may explain why it is not prepared to play follow-the-leader with its mortgage competitors now.

Bank of Ireland chief executive Richie Boucher told a parliamentary committee yesterday that the group won't "slavishly follow the strategies of other banks" in cutting rates, because the margin it makes on these mortgages is not "exorbitant".

Tell that to homeowners on Bank of Ireland variabl- rate mortages, who are paying considerably over the odds for their home loans even though in Europe mortgage-holders are benefiting considerably from historically low European interest rates.

In France, for example, variable-rate mortgages can be taken out at about 2.5 per cent.

Here, however, banks have consistently pushed variable rates in the opposite direction to European trends in recent years, with Bank of Ireland’s variable rate on mortgages with a loan-to-value of more than 80 per cent currently standing at a lofty 4.5 per cent.

Or at least this was the direction the banks were going in until AIB broke ranks last week. By cutting its variable rate by 0.25 percentage points, the bank paved the way for what many industry observers believe is the start of downward pressure on mortgage rates and some element of relief for homeowners. Last week's rate cut for example, would save a customer with a 25-year mortgage of €200,000 about €333 a year.

While Mr Boucher’s assertion that he does not intend the bank to be a slave to market trends may go against this expectation, it does not mean that a rate cut is out of the question. As competition in the market picks up, the bank’s offer to pay stamp duty of 1 per cent for first-time buyers may not be enough to win it customers if significant interest rate differentials between the banks open up.