Is it fair for lenders to give reductions to customers who threaten to move?

kildon

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Good work on getting the rate reduction

I'm curious as to how banks can offer different customers different rates when they have similar or the same loan?

Does it not jar with the fair rates campaign which in summary is looking for equality for all new and existing customers, allowing for some variation in price based on LTV?
 
Does it not jar with the fair rates campaign which in summary is looking for equality for all new and existing customers, allowing for some variation in price based on LTV?

Hi Kildon

It's perfectly valid for a lender to charge someone on a higher Loan to Value a higher mortgage rate. The risk of default on a 90% mortgage is much higher than the risk on a 50% mortgage.

Sorry, just re-reading your post and you seem to be allowing for this. So what are you finding jarring?
 
I wasn't as clear as I could have been

If one customer rings up and gets a better rate for whatever reason, is it fair to other customers with the same loan and LTV?

it suited KBC in the instance above to buy someone off but this means that there are different rates for the same customers, how is that fair?
 
If one customer rings up and gets a better rate for whatever reason, is it fair to other customers with the same loan and LTV?

If I walk into a car dealership and say I'll buy a (new) car if you give me a 5% discount, and they agree, is that fair to someone who bought an identical care for the full price?

Why is lending cash (or any other service) any different?
 
Strongly agree with newtothis.

I take the view that every loan is a new bargain and the parties to that bargain should be free (and encouraged) to agree whatever terms they see fit. That's how competitive markets work.

i really don't see why anybody should be entitled to impose their own subjective view as to what is "fair" on anybody else with regard to any private contractual arrangement but I suspect that this is a minority opinion around these parts.

I do know that many, if not most, posters are enthusiastic supporters of the view that the terms of all loan agreements should be fixed, or at least heavily regulated, by the State.
 
The car dealership example is a good one, but can you treat mortgages the same?

If you believe the car example is fair, can I take it that you believe that the rates for new and existing customers don't need to be the same? That they can be different but shouldn't be too far apart?
 
It's business and if the cost of retaining a customer is a price cut, then so be it. It's no different from any commercial deal. If you're the buyer and you can get a better price elsewhere, why should you not be allowed take it on grounds of "fairness"?.
 
I'd say yes it's fair.

It's up to the business to determine if the threat is valid and if they want to keep the business. If they can afford to offer a discount then why not?
If the option was taken away then the customer has no option but to move their business. Most won't bother as it's a huge pain in the hole.

e.g. I contacted KBC last year asking about their rates. They told me they don't negotiate. So I moved. It's not something I enjoyed. If they'd offered me a discount of €20 or €30 a month I probably would have stayed or considered staying at least and they'd still have made money. They offered me nothing so I 100% wanted to move and couldn't move quick enough moved and ending up saving over €100 a month.
 
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The risk of default on a 90% mortgage is much higher than the risk on a 50% mortgage.
Never agreed with this and realistically most good risk analysts would take a similar view. The priority aspect of risk assessment is ability/willingness to repay. Security/collateral is always regarded as a secondary risk. Historically up until the 2007 crash Ireland had never experienced a serious reduction in house prices. Default risk as opposed to risk of loss post default is largely irrelevant to security value.
 
Never agreed with this and realistically most good risk analysts would take a similar view. The priority aspect of risk assessment is ability/willingness to repay. Security/collateral is always regarded as a secondary risk.

All the available evidence suggests that there is a strong positive relationship between high LTVs on origination and subsequent defaults.

The Central Bank summarises some of the literature in this paper:
[broken link removed]

Aside from the academic research, it also makes sense intuitively - if borrowers bring less equity to the table they have less incentive to maintain repayment discipline. Put simply, they have less to lose by defaulting. This goes to your point about willingness to repay and is particularly important in Ireland where lenders encounter significant difficulties in enforcing security over residential property.

Historically up until the 2007 crash Ireland had never experienced a serious reduction in house prices.

There have certainly been decades in the past (other than the most recent decade) when Dublin house prices fell significantly in both real and nominal terms. Here's a chart based on research carried out by Ronan Lyons showing changes in real Dublin house prices since 1900.


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Seems people thinks it's fair that individuals get the best deal they can. Taking that a step further, new customers or switchers will always get a better deal because banks are trying to entice them, and customers who threaten to leave can be offered lower rates just to keep them. It's a tough call as to whether it's fair or not, I'm not sure it is. The Ulster Bank offer seems excessive in that they are giving new and existing customers the same rates, why bother? Would they not make more money by offering better rates to new customers only and leave existing customers on higher rates. Could say the same about other other banks.
 
Seems people thinks it's fair that individuals get the best deal they can. Taking that a step further, new customers or switchers will always get a better deal because banks are trying to entice them, and customers who threaten to leave can be offered lower rates just to keep them. It's a tough call as to whether it's fair or not, I'm not sure it is.

I don't see why it shouldn't be seen as fair, although it's downright inconvenient. To quote another example: for as long as I can remember, every year when I get my car insurance renewal I've gone out and got a few quotes, and armed with these, if any were significantly lower have requested a lower renewal premium. Usually, it's forthcoming. If you don't ask, you won't get. A mortgage is different of course, in that there's no renewal to prompt you to action: who would bother to check their mortgage periodically against the market? I'd accept it would be a lot simpler if it is totally transparent with everyone getting the same rate (given the same LTV etc.). In other words: simpler & convenient definitely, but fairer?

On the fairness topic, there's a couple of scenarios where I think it does come into play. Firstly, in the case of negative equity where the lender knows you have no real alternative and they abuse that power to keep you on a higher rate. The other general scenario is where a provider or group of providers make it difficult to move: the role of a strong regulator comes into play here to ensure fairness (the example of the banks being forced to make it easy to switch current accounts springs to mind here). I think it naïve in the extreme to assume the market will ensure "fairness" if left to its own devices, especially if there are relatively few providers: there is no doubt in my mind that an strong and effective regulator is needed.
 
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