A comparison of fixed rate offerings

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RedOnion

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These rates are getting very close to what people are referring to as 'European norms' when we factor in that a lot of countries charge the customer an arrangement fee to set up their mortgage.

I've done an analysis, based on current rates (so there's no speculation factored in), of the cost of financing of 4 & 5 years based on the main lenders currently available rates. Factored in the reported new product from UB, and I threw in the best available LTV variable rate for comparison.

Results are: All based on initial loan balance of 300k (order left to right based on 5 year interest charge)
OfferBOI 5 yearUlsterBank 4 yearBOI 3 yearPTSB 5 YearKBC 3 year3.1% LTV RatePTSB 3 year
Initial Rate3.00%2.60%3.00%3.20%3.19%3.10%3.20%
Roll-to Rate4.20%3.30%4.20%4.00%3.10%n/a4.00%
Fixed Term (Months)6048366036n/a36
Total (Months)300300300300300300300
Cash Back Y 16,000.001,500.006,000.006,000.003,000.003,000.006,000.00
Cash Back Y 53,000.0003,000.000000
Total Interest 4 years€29,549.72€27,742.51€30,479.44€30,685.91€32,595.37€32,575.10€31,688.95
Total Interest 5 years€34,726.71€36,269.70€38,272.43€39,132.03€40,628.00€40,803.15€41,979.84

Assumptions:
  • 300K loan, over 25 year term, at < 80% LTV Rates
  • BOI, EBS and PTSB 2% cash back upfront, with KBC 3,000, and UB 1,500. Additional 1% BOI back at end of year 5
  • Cash back' amounts are included in total interest cost where applicable
  • LTV of 3.1% is based on KBC being the best available in market for 80%LTV, with cash back offer
  • KBC assumes current account offer (0.2% discount on rates) PTSB Rate is based on >250k balances.
  • All rates are based on currently available roll-off rates from fixed term
  • Ulster Bank is based on reported new 4 year fixed rate, assuming they keep 1500 cash back
  • I've taken a shortcut in my model and assumed monthly capitalisations across the board
  • Cash back amounts are assumed to be paid off balance to reflect time value of money.
Edit: comment re treatment of cashback in calculation
Edit: I've tidied up the table to remove unnecessary rows, and removed fixed rates for AIB & EBS as they don't add to discussion
 
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Hi Red Onion

An interesting spreadsheet, but you don't need a spread sheet to show that fixing with Ulster Bank at 2.6% for four years is cheaper than fixing with AIB for 4 years at 3.75%!

It's interesting to compare BoI with Ulster Bank.

Using your figures, the payments with Ulster Bank are a bit lower over 4 years but a bit higher over 5 years.

So, it's clear to me that someone should choose Ulster Bank over Bank of Ireland. Ulster Bank has less of a history of using gimmicks to trick customers. At the end of the period, you are more likely to be paying a lower rate with Ulster Bank than with BoI. Some will switch, but most won't because they can't or they can't be bothered.

Brendan
 
Brendan Burgess said:
An interesting spreadsheet, but you don't need a spread sheet to show that fixing with Ulster Bank at 2.6% for four years is cheaper than fixing with AIB for 4 years at 3.75%!
Click to expand...

I agree completely, but I was doing a full comparison across all lenders to show the impacts of cash back offers on the total costs to customers. It shows how much more expensive AIB is, and how disfunctional the market is. AIB is pricing in a premium for fixed rates, when almost every other lender is discounting it.
My mortgage is with AIB but I didn't realise how uncompetitive they have become.

I don't hide the fact I work in banking, so one can assume I work for one of the banks in the table. However, I deal in facts so as not to be dragged into speculation. If one knows they will review their position at the end of the fixed period, there are obvious choices. 3, 4, or 5 years from now the market will be different. It'll either be more competitive and there'll be lots of options to switch, or we'll have taken a step backwards and every bank will be screwing their customers over. I wouldn't trust any of them to be 'fair' about it.
 
Brendan Burgess said:
Hi Red Onion

The UB rate applies to people borrowing over €300k.

So I wonder if the difference on a mortgage of €200k would be sufficient to persuade me to recommend BoI over a variable rate with EBS.

Would it be easy to adapt your spreadsheet to compare, say EBS, KBC and BoI for a €200k mortgage?

Brendan
Click to expand...

Here you go:
All based on initial loan balance of 200k. Ordered left to right based on 5 year interest charge.

OfferBOI 5 year fixedKBC LTVBOI 3 year FixedEBS LTV
Initial Rate3.00%3.10%3.00%3.50%
Roll-to Rate4.20%N/A4.20%N/A
Fixed Term (Months)6030036300
Total (Months)300300300300
Cash Back Y 14,000.003,000.004,000.004,000.00
Cash Back Y 52,000.0002,000.000
Total Interest 4 years€19,699.81€20,072.14€20,319.63€21,974.72
Total Interest 5 years€23,151.14€25,380.02€25,514.96€27,965.72
Total Interest 9 years€49,349.83€44,600.24€51,942.07€49,709.59

Assumptions as before, with 200k balance.

It's between year 9 & 10 before EBS comes out ahead of BOI at current rates.

Edit: Tidy up of table to remove unnecessary rows.
 
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By my calculations, BOI's 5-year fixed term product equates to a rate of around 2.3% over the five years.

That's not much higher than the Eurozone average for fixed-rate home loans with a similar term and bear in mind that home loans on the continent invariably come with an arrangement fee.

I think that's pretty amazing when you consider our extraordinary default rates.
 
I think in BOI's defence it is also worth pointing out that they also allow small overpayments on their fixed rate mortgages - 10% of the mortgage repayment or 65 euro - whichever is greater. This can give some of the benefits of a split mortgage, without having one.

I do think the BOI fixed mortgage, with cashback is a decent offer in the short term. They are also known to 'do a deal on variable rates' with customers who threaten to leave. However this is only for proactive people, and may not necessarily suit the 'masses' who suffer from inertia. That said, I would expect them to issue an options letter at the end of the fixed period, and if their current strategy continues, I doubt anyone would select a variable rate product unless they were planning to switch immediately.

My second (and probably final) defence of BOI is they are open and honest about their strategy that they are looking for fixed rate customers. They treat these customers pretty well and allow them rollover onto the various fixed options open to them. They are not really suitable for variable customers at the moment, but that's fine and their decision. There are other banks who are a lot more 'underhand' about how they treat customers (in my personal view).


I know Ulster Bank are probably being a bit 'fairer' at the moment towards their customers, but their handling and behaviour during the tracker crises can hardly be commended. I am not sure you will get a 'people's bank' over a period of 5-10 years. They will all have customer first strategies from time to time, but ultimately its about gaining market share or something similar.
 
I've tidied up the tables in earlier posts in case anyone reviews them later.

If anyone wants to play around with their own scenarios, here's a simple model to deal with 1 at a time (my other models aren't laid out in an easy to follow manner). (EDIT: Link to Google Docs removed as spreadsheet not maintained)

I've amended to deal with up to 30 years. Let me know if you spot any errors, or if there's a scenario I haven't catered for.
 
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Super work Red Onion.

Mods - would it be possible to copy Red Onion's two revised spreadsheets, with assumptions, into a standalone Key Post so readers can assess the impact of the various cash-backs deals over different time periods for different loan amounts?
 
@Sarenco If we're going down that route, do you think it might be worth doing a full key post on fixed rates in general, including the various breakage clauses? There seems to be a reluctance from some to recommend moving to a fixed rate, in case they miss out on variable rate reductions, but I'm not sure if most people fully understand how breakage costs are calculated under the 2016 legislation.
 
Hi Red Onion

Great work.

One more suggestion.

Any chance of putting them in lowest rate order - either by 4 years or 5 years?

Brendan
 
Thanks for your work Red Onion. We are with PTSB on a variable rate. I'm thinking of switching.
 
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