Cash back incentives should be banned as they allow circumvention of the LTV limits
- Thread starter Sarenco
- Start date
Brendan Burgess
Founder
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- 52,049
That is a really interesting idea.
How best to explain it?
The alternative would be to change the rules so that where cash back is required the maximum LTV should be reduced by the amount of the cash back.
So, it the above case, the deposit required should be increased to €12k.
I would like to see cash-back with claw-back as with permanent tsb and BoI banned.
But it's not clear to me that the EBS should be banned from the 2% cash back with no strings attached.
If you ban the 2% cash back, would you ban the €2,000 AIB pays towards legal expenses?
Brendan
How best to explain it?
The alternative would be to change the rules so that where cash back is required the maximum LTV should be reduced by the amount of the cash back.
So, it the above case, the deposit required should be increased to €12k.
I would like to see cash-back with claw-back as with permanent tsb and BoI banned.
But it's not clear to me that the EBS should be banned from the 2% cash back with no strings attached.
If you ban the 2% cash back, would you ban the €2,000 AIB pays towards legal expenses?
Brendan
Hi Brendan
Yes, I would favour a blanket ban on all cash incentives associated with home loans.
They are really just a mechanism to allow lenders to advance bigger loans to customers at higher interest rates - there is certainly no free lunch for borrowers!
We are the only country that I am aware of where cash-back incentives are common place. In most countries borrowers have to pay a fee to a lender to process a loan. This makes sense as there is a significant administrative cost to the lender to carry out credit checks, arrange valuations, review documentation, etc.
Why are we so out of step with other countries in this regard? Customer preference probably forms part of the explanation but in my opinion the Central Bank's LTV requirements is the key driver.
Yes, I would favour a blanket ban on all cash incentives associated with home loans.
They are really just a mechanism to allow lenders to advance bigger loans to customers at higher interest rates - there is certainly no free lunch for borrowers!
We are the only country that I am aware of where cash-back incentives are common place. In most countries borrowers have to pay a fee to a lender to process a loan. This makes sense as there is a significant administrative cost to the lender to carry out credit checks, arrange valuations, review documentation, etc.
Why are we so out of step with other countries in this regard? Customer preference probably forms part of the explanation but in my opinion the Central Bank's LTV requirements is the key driver.
Brendan Burgess
Founder
- Messages
- 52,049
Hi Sarenco
I have never heard of anyone other than yourself raising it as a way around the LTV requirements. I really think it's a marketing exercise to allow higher rates, and not a way around the LTV requirements.
I agree that they should be banned, but not because of the LTV reasons.
Brendan
I have never heard of anyone other than yourself raising it as a way around the LTV requirements. I really think it's a marketing exercise to allow higher rates, and not a way around the LTV requirements.
I agree that they should be banned, but not because of the LTV reasons.
Brendan
I agree they should be banned. Consumers should pay for the costs of legals, searches, etc. This might lead to improved behaviour as they would see it as real money. In essence the incentives are nothing more than increased loans and factored into higher rates.
Fair enough but I really don't think it's a coincidence that BoI introduced their 2% cash-back offer (which others had to follow) within months of the introduction of the Central Bank rules.
Regardless of the intent, I think it's clear that the cash-back incentives reduce the effectiveness of the LTV limits from a prudential regulatory perspective.