BOI cuts mortgage rates - but no relief for existing variable rate customers

Bank of Ireland has become the latest bank to announce a reduction to its mortgage rates, with the cost of borrowing falling on a range of fixed rate products. However, while the bank has reduced its variable rate for new customers, it will only apply to those with a mortgage where the loan-to-value (LTV) is less than 80 per cent. For a homeowner with a LTV of less than 60 per cent the rate will from between 4.10-4.3 per cent to 3.9 per cent; those with a LTV of between 61-80 per cent will see the variable rate fall to 4.2 per cent from 4.3-4.4 per cent. For anyone looking to borrow with a deposit of 20 per cent or less, the variable rate will remain at 4.5 per cent.

With regards to fixed rates, new customers of the bank can avail of rates ranging from 3.8 per cent for a two-year fixed period where the loan-to-value is less than 75 per cent, to a 10 year fixed rate from 4.5 per cent. Previously the equivalent rates were 4.25 per cent and 4.99 per cent respectively

The move is the latest in a line of rate decreases. On Monday Permanent TSB said it would cut rates for new customers by between 0.36 and 0.42 per cent from January 12th, pushing its variable rate where the LTV is above 80 per cent down to 4.2 per cent.

Last year AIB cuts it variable rate by up to 0.25 per cent from December 2015, cutting the rate on a 80 per cent LTV mortgage down to 4.25 per cent.

However, commentators have criticised the decision of some of the banks to exclude existing customers from the rate cuts.

Consumer campaigner Brendan Burgess of askaboutmoney.com says that there is “ absolutely no justification” for the banks only offering reductions to new customers “other than to exploit those customers who cannot move because of negative equity or mortgage arrears”.

“A regulated entity must act honestly, fairly and professionally in the best interests of its customers and the integrity of the market,” he said, suggesting that the latest cuts from BOI and PTSB may be in breach of the Central Bank’s Consumer Protection Code. As such, he is urging consumers to boycott lenders who do not pass on cuts to existing customers.

BOI says that existing customers can still benefit from Monday’s reduction as when they mature off a fixed rate they can avail of the new business fixed rates; or if on a variable rate they can switch to a new fixed rate; and existing customers maturing on a fixed rate but returning to variable can avail of a reduced “roll to rate” at the end of the fixed period with the provision of an up to date valuation showing a lower LTV of 75 per cent.

“This is unique among Irish mortgage providers,” the bank says.

Ciaran Phelan, CEO of the Irish Brokers Association, also said that it was “disappointing” to see Irish banks going back to the “new customers only” strategy.

“Existing variable rate mortgage holders have been gouged for years now to boost the bank’s profitability and they continue to be left out in the cold by the banks - many are struggling and they need a lifeline in 2015,” he said.

Indeed Irish mortgage rates remain far higher than European norms. Before Christmas Central Bank of Ireland governor Patrick Honohon said that the average rate being charged by Irish banks is 4.51 per cent - a full two percentage points higher than is being paid in other euro zone countries at a time when ECB interest rates are almost zero.