This study was done with a view to informing policy. I am not sure if they have learned anything from it which informs policy.
For me there are two questions:
- Why do so many people who could avail of a cheaper rate from their current lender not do so?
- Why do so many people who could avail of a cheaper rate by switching lender not do so so?
Why do so many people who could avail of a cheaper rate from their current lender not do so?
A few of us campaigned for a long time to bring down the extraordinarily high SVR charged by permanent tsb. Eventually, they allowed existing borrowers who were on 4.5% to avail of a lower LTV rate.
ptsb even paid for the valuation as far as I remember.
All a borrower had to do was to get the list of valuers and arrange an appointment. If there was a form to be filled it, it was not complicated.
And they moved quickly to a lower rate.
I was shocked when, a year or two later, only 20% of borrowers had availed of this. ptsb had written to them twice explaining it in simple terms.
BoI still has many customers paying 4.5%. They can fix for one year at 2.9% irrespective of their Loan to Value. You might argue about the merits of fixing for two years instead of one year or 5 years instead of 1 year, but fixing for one year is clearly better than a variable rate of 4.5%.
KBC has even bigger gaps. If I recall correctly, only 20% of KBC mortgage holders have a current account with KBC. They get an automatic discount of 0.2%. On a €300k, mortgage, that is €600 a year.
So the policy question is whether you should protect people from themselves?
AIB in contrast to the other lenders passes on rate cuts automatically to their customers.
The most any customer of AIB is paying is 3.15% - compared to 4.5% for many BoI customers.
Should it be a requirement that lenders have to price their products in manner which does not exploit customers?
I think it should be a requirement, but I don't know how it could be done.
Firstly, lenders should be required to make all deals on offer to new customers available to existing customers. But even still the customer has to ask for that deal.
Should lenders be obliged to offer a variable rate in some way proportionate to their fixed rates? If BoI is prepared to offer existing customers a fixed rate of 2.9% irrespective of their LTV, should the maximum variable rate be tied to this in some way?