In a move which could spark another round of mortgage cuts, Bank of Scotland yesterday reduced its variable rate for customers in the Republic to 3.69 per cent. The bank also promised it would always maintain its variable rate within 1.5 percentage points of the European Central Bank (ECB) base rate. Currently, the ECB rate - at which the financial institutions buy money - is 2.5 per cent.
In a move designed to entice consumers who already have mortgages with other institutions, the bank also said it would contribute £500 (€635) towards borrowers' legal fees.
Two months ago, Bank of Scotland provoked a series of rate cuts from Irish lenders when it first entered the Republic's mortgage market offering loans at 3.99 per cent. The rate significantly undercut the Irish banks, most of which had refused to pass on ECB rate reductions to their customers.
Yesterday, the Scottish bank said its initiative had so far been "extremely successful", with provisionally approved loans of some £250 million (€317 million) to date.
While it would not reveal exactly how many customers this sum represented, the bank said 6,000 people had requested information and applications packs to be sent to their homes. A spokesman said that while Scotland was a different market to the Republic, the ratio of loans to packs sent out when direct mortgages began there was around 40 per cent.
"This latest cut in the mortgage level increases the competitive pressure in the Irish mortgage market," said Ms Susan Rice, Bank of Scotland's managing director of personal banking. "We are delighted with the launch and the successful in-road we have made, in only three months, into what is a new market for us."
Mr Ronnie Macaulay, head of Bank of Scotland's direct mortgage division, said the latest rate cut was designed to consolidate and build upon the bank's position. He said he hoped the £500 offer would make customers of the other banks consider switching their loan.
He said the guarantee that the company would never charge more than 1.5 percentage points more than the ECB rate addressed any concerns consumers might have about whether the Bank of Scotland would remain in the Irish market, and continue to offer a competitive rate. "The rate we have now is not a loss leader or anything like that - we're comfortable with it," he said.
In Britain, Bank of Scotland offers direct banking mortgages at a variable rate of 6.15 per cent, just 0.9 percentage points higher than the bank of England rate of 5.25 per cent.
In the months before Bank of Scotland's entry to the market, almost all Irish institutions charged customers around 5 per cent for their loans - double the ECB rate. Because of what can at best be seen as the extraordinary coincidence of none of the major institutions passing on successive ECB rate cuts to consumers, a complaint was lodged with the Competition Authority. The authority had announced no action against the domestic institutions by the time Bank of Scotland entered the market, forcing down prices.
Bank of Scotland's chief executive, Mr Peter Burt, said the entry into the Republic's market was an example of innovation by Bank of Scotland. "Using our existing systems and our expertise in direct banking, we have established a successful presence in a new market. It is ideas such as these which help us continue to achieve profitable growth for our shareholders."
