Richie Boucher: BoI is deliberately charging a high SVR to encourage people to fix

Brendan Burgess

Brendan Burgess

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This is an excerpt from yesterday's Oireachtas Finance Committee. I will update when the transcript is published.


Michael McGrath

Focus on mortgage pricing
You are still charging 4.5% when the cost of funds <0.75%
How is that justified

Boucher: we have reflected on lessons of the past
We don't take interest rate risk as a bank.
We are a commercial business
We are deliberately incentivising customers to move to fixed rates
The current low rate environment is abnormal
Rates will rise over the next 20 years
fixed rates give certainty
Every one of our existing customers could save money today by going to a fixed rate.
You can fix part of it

McGrath
Are you being proactive in telling customers?
They can get 3.5% but they are paying 4.5%

Boucher
It's a personal choice for customers
We have to use a variety of mechanisms
But we have to be careful not to encourage
We are not allowed to actively encourage customers to move from one product to another

McGrath
Waht is the uptake like

Boucher
Our average mortgage is €95k
Some customers think it's not worth their while
It's an easy process

McGrath
Your SVR product is too high
You are happy to be an outlier
That is your strategy

Boucher
Yes. It's a carefully considered strategy

McGrath
You have a 1.43% rate for two years in the UK

Boucher
Markets are different. WE offer 2% in Ireland

McGRath
3% in the Ireland vs 1.4% in the UK

Boucher
It's probably broadly the same

McGrath
It's much more sustainable to be on a good rate
People find the 2% attractive
 
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Brendan Burgess said:
Michael McGrath

Focus on mortgage pricing....

Boucher:....
We are deliberately incentivising customers to move to fixed rates
The current low rate environment is abnormal
Rates will rise over the next 20 years
fixed rates give certainty
Every one of our existing customers could save money today by going to a fixed rate.
You can fix part of it...
Click to expand...

Do BoI do long term fixed rates (i.e. 10-20, or even 30 year fixed rates), I didn't think so (for homeloans, anyway) ?

Assuming there is no option to fix for say 20 years, then how is it to someones advantage to fix for say 3 years now, if rates are going to go up over the 20 years ahead, it's the 3-year period they would be concerned with, wouldn't they ?

He might be right in saying that people fixing their rates can save money, but thats compared to their SVR. He also forgets to mention that from a Bank's point of view, there are advantages to having their borrowers fix their rates (although perhaps he see's that as being incorporated within his brief mention of BoI being a commercial business etc) :)
 
He misses the point, why should we fix to a rate that is higher, when the variable rates are a lot lower in every other country. I understand suggesting to fix when the variable rates rise but now, seems like you can't win with BOI.
 
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For those that are interested there was, in my opinion, excellent analysis on RTE about an hour ago.

1. Fix your interest rates
2. Repossesions are the name of the game
3. Interest rates are going to rise. Because QE is gone, because of Brexit and because of Trump.
 
Complete fit up.
Make your customers feels so much pain that they have to swallow your fixed rate product which not only is also vastly overpriced but ensures bank has no risk.
When you can no longer take the pain of paying BOI 6 times what they can borrow that money at, just lock it in with them for 5 years at 4.5 times.
Richie and his bank can then sleep well having packaged the whole lot off to Goldmans or someone else, next stop AGM, huge bonuses and pats on the back all round.
 
Is it only me that actually appreciates Richie's directness? No bull about him - he clearly states his strategy and sticks to it. You know where you stand with BoI unlike most other banks.

He is a bit like Michael O'Leary in that respect
 
Directness is super, but I couldn't give a fiddler's if it means my monthly mortgage is more then it should be.
 
Onceagain said:
Directness is super, but I couldn't give a fiddler's if it means my monthly mortgage is more then it should be.
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More than it should be based on what? If you are with BoI and you can switch, then you should if you are unhappy. If you cannot switch, then you should try get the best deal from them until you are in a position to switch.

We all agree rates in general are too high in Ireland (or I assume at least most do). Despite lots of downward pressure on the banks, they are still not at the levels we all want as customers.

I had a look at the UK mortgage model there a minute ago again. You can get great introductory deals for 2 or 3 years, rolling onto relatively high SVR rates, plus you pay an arrangement fee upfront by enlarge. After this initial period, you need to switch again (I assume) to continue on a better deal. Is this any different switching every 12 months here to avail of the 2% cashback option? Those who cannot switch after the initial period are stuck on the high SVR rates
 
gnf_ireland said:
More than it should be based on what? If you are with BoI and you can switch, then you should if you are unhappy. If you cannot switch, then you should try get the best deal from them until you are in a position to switch.

We all agree rates in general are too high in Ireland (or I assume at least most do). Despite lots of downward pressure on the banks, they are still not at the levels we all want as customers.

I had a look at the UK mortgage model there a minute ago again. You can get great introductory deals for 2 or 3 years, rolling onto relatively high SVR rates, plus you pay an arrangement fee upfront by enlarge. After this initial period, you need to switch again (I assume) to continue on a better deal. Is this any different switching every 12 months here to avail of the 2% cashback option? Those who cannot switch after the initial period are stuck on the high SVR rates
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Agreed, I am unable to switch currently, obviously if I could I would be gone, and anyone that switches to a fixed rate product with BOI cause he says so, needs their head examined, bully boy tactic's.
 
Onceagain said:
anyone that switches to a fixed rate product with BOI cause he says so, needs their head examined
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No, switching to a fixed rate product is to lower the cost of your mortgage, not because he says so. if you are on 4.5% or 4.35% or whatever, and you are not able to switch away from BoI, moving to a fixed rate product with a lower rate is sensible and will save you money.

BoI have clearly stated they are not moving on their variable rates. You are not in a position to switch to another bank at the moment to avail of lower rates there. Surely, the sensible thing is to move to the best rate you can with BoI?

Fixed Rates have 3 main disadvantages
- 1. If rates drop, they are fixed so you cannot avail of them. BOI are unlikely to drop variable rates so a non-issue for you
- 2. You cannot switch without paying a penalty - you are not in a position to switch in the short term so again a non-issue for you
- 3. You cannot overpay your mortgage. Do not know if this applies to you, but BOI let you overpay by 10% I believe based on the last time I read a BOI contract

Can you explain the downside from your point of view of changing to a lower fixed rate with BOI currently, other than Richie says you should ?
 
God bless you, you are so trusting, so if I do fix and then the variable rates reduce. I would surely kick myself. BOI ARE unlikely to reduce, I stress UNLIKELY. Plus you all have forgotten bank of Ireland sent letters offering customer's the option to fix a while back and they got into hot water for it. I was also advised not to fix with BOI at this time. Do you not remember that, what's changed?
 
Onceagain said:
BOI ARE unlikely to reduce, I stress UNLIKELY.
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Fair enough, but if I was a betting person, I know which way I would be betting

Onceagain said:
so if I do fix and then the variable rates reduce. I would surely kick myself
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Plus they have to lower the variable rate to below the relevant fixed rate for it to cause you to lose money. I cannot comment on this as I do not know your LTV or your variable rate.

Onceagain said:
I was also advised not to fix with BOI at this time. Do you not remember that, what's changed?
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What has changed is a clear strategy from BOI not to be competitive in the variable rate market and clear statements from their CEO that this is their strategy.
This is also a CEO who does not easily sway to populist moods and sticks to his guns pretty much all the time

But ultimately the choice is yours. If you believe your mortgage will cost you less by sticking on their relevant variable rate, then that is what you should do. If you believe it will cost you less to move to fixed, then that is what you should do. Taking into account your personal circumstances, and the comments made by the company CEO on their strategy - make the educated decision on what is best for you, not me or Richie but you personally


Onceagain said:
God bless you, you are so trusting
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And I can assure you I do not trust BOI or any bank. I am purely interested in making sure my mortgage repayments are as small as possible and doing whatever I can to ensure that. You should do the same.
As a side note, I switched away from BOI in 2015 due to their mortgage policy on variable rates, but appreciate this option is not open to you currently.
 
Onceagain said:
God bless you, you are so trusting, so if I do fix and then the variable rates reduce. I would surely kick myself. BOI ARE unlikely to reduce, I stress UNLIKELY. Plus you all have forgotten bank of Ireland sent letters offering customer's the option to fix a while back and they got into hot water for it. I was also advised not to fix with BOI at this time. Do you not remember that, what's changed?
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It's got nothing to do with trust.

BoI's SVR is 4.5%. Their one-year fix for LTVs >80% is 3.55%. That's a big difference.

Do I think there is any realistic possibility that BoI will reduce their SVR over the next 12 months? No.

BoI's SVR in the UK is the same as their SVR in Ireland and that is a far more competitive mortgage market. BoI have stated very clearly that their strategy is to encourage borrowers to fix. They don't want to compete on variable rates so why would they reduce their SVR?

Even if you think there is a possibility that BoI will reduce their SVR (which I think is highly unlikely) do you really believe that they will do so aggressively enough and quickly enough that you would be worse off as a result of fixing for one year?

I don't know who advised you not to take a one-year fix to escape your SVR but, frankly, it has turned out to be very poor advice.

It's your choice, obviously, but if you are paying an interest rate of 4.5% you have only yourself to blame.
 
I take both your points, but it's not right, lets roll over and fix. It's the principle surely you can see that. We have no fight left in us, the bank rules, end of, nothing changes.
 
Thats very 'honest' of Mr Boucher.

I would love to hear Danske Bank's reason for charging 4.95% svr seeing as they do not offer any consumer products or services whatsoever in Ireland, therefore no option to Fix rates.
Im sure if you drilled down into Bouchers real reasons its probably the same as Danske in that a large part of the market are simply unable to switch and a large part cannot be bothered due to apathy.
Interestingly in NI, Danske are offering £2000 cashback for switching to them to them.!! Oh, the irony...
 
Eureka101 said:
I would love to hear Danske Bank's reason for charging 4.95% svr
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Because they can ! Simple as... I dont think anyone is saying otherwise.

The difference with BOI is a BOI customer who cannot switch can get a better rate with BOI by fixing. A Danske bank customer is stuck on the 4.95% rate

Eureka101 said:
Im sure if you drilled down into Bouchers real reasons its probably the same as Danske in that a large part of the market are simply unable to switch and a large part cannot be bothered due to apathy.
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Correct - a reasonable amount of BOI's customer base cannot switch (but they can get a lower rate by fixing)
Those who can and want a better variable rate and are still not bothered to switch due to apathy are hardly Boucher's fault. They are implicit in making BOI uncompetitive at variable rates by their apathy. If BOI lost all these customers, they would have a meaningful variable rate product on the market


Onceagain said:
It's the principle surely you can see that. We have no fight left in us, the bank rules, end of, nothing changes.
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Principles are great to have. But I dont see how paying BOI ~1% extra in interest on your mortgage will sort anything out. It is simply paying more into Richie's bonus package
There has been lots of attempts on here to get traction on the SVR issue but to no real avail. Small successes have been had
What do you propose will help pressure the banks into making cuts to SVR rates?


Silvio Dante said:
Boucher is an arrogant SOB
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Yes he is that. I don't think anyone will deny that to be honest
And he cannot tell the future on interest rates - no one can. But he is still making it very clear that BOI will not be competitive on variable rate mortgages and that is their strategy



This is not an attack on BOI or Richie - it is simply stating that BOI are targeting fixed rate mortgages as a strategy so do not expect value on a variable rate one from them anytime soon. If you are on one, you should carefully consider your own personal strategy in the short and medium term. If you choose not to do so, that's your own business.
 
Sarenco said:
Well, if you want to needlessly pay a higher interest rate on a point of principle that's up to you.

I'm sure Mr Boucher won't refuse the additional revenue.
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It's not that simple, these fixed rates arent applicable to everyone, and as I said I will switch once I am in a position to do so.
 
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