We have a market where mortgage rates are about 1.5% higher than the average rates in the eurozone. This issue has to be dealt with. I wish that competition and fair treatment of customers would solve the problem, but it hasn't done so. There has to be legislative control.
If we want to rely on competition to bring down rates, it's essential that competition benefits existing customers as well as new customers
The lenders use every trick in the book to exploit inertia and to confuse customers.
KBC does not pass on interest rate cuts to existing customers. As a result of pressure from the Fair Mortgage Rates Campaign, they have now agreed to let existing customers apply for the rates now available to new customers. But this application obliges them to agree that they will not be entitled to any future cuts.
Again, as a result of pressure, ptsb now allows existing customers to apply for the rates on offer to new customers. But they keep the variable rates artificially high and get customers through 2% cash back.
BoI does offer existing customers the same rates as new customers, but it too keeps the rates artificially high through cash back.
But Sarenco, and many others, have asked: Why should lenders be obliged to treat existing customers and new customers the same? It's not required in any other industry.
I will set out some of the reasons here:
The mortgage industry is not like any other industry, so it should be regulated differently
- Mortgages are, in practice, long-term contracts - most other industries are one year contracts
- Mortgage payments are usually much larger than any other payment such as phone or electricity
- It's much more difficult to compare a 20 year product than a one year product - so complex pricing and incentives can be used to confuse customers into making bad decisions
- It is very easy to switch your car insurance or your electricity supplier ; it's not easy to switch your mortgage
Comparisons are more difficult to make
A solicitor is needed
It is time consuming
Many people can't switch because of a bad credit record or change in circumstances.
- Many other industries offer time limited deals e.g. a discounted rate for the first 6 months. Mortgage lenders stick the existing customers to higher rates for the full duration of the mortgage
There are other differences between the mortgage and other markets
- The Consumer Protection Code obliges lenders to treat customers fairly – there is no such obligation on utility providers.
- When comparisons are difficult, the borrower will often default to the bank with whom they have their current account. So AIB and Bank of Ireland have almost a captive audience. There is no such tie-in with other industries.
- Most other industries pass on price increases and reductions to new and existing customers equally.
We don't prevent any other commercial enterprise from offering incentives to attract new customers so why should mortgage providers be treated as a special case?
Well actually we do. Health insurers must offer any new product to all customers and not just new customers. In fact, we go even further with health insurance, insisting that every insurer must charge the same price to customers irrespective of medical history. That would be like obliging lenders to give everyone who applies for it a mortgage, irrespective of their credit record.