Customers should boycott lenders who do not pass on cuts to existing customers

Brendan Burgess

Brendan Burgess

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Press release I have issued this afternoon

Customers should boycott lenders who do not pass on cuts to existing customers

Brendan Burgess, consumer campaigner, and founder of askaboutmoney.com today called on borrowers to boycott ptsb and Bank of Ireland and for existing customers of these banks to switch their mortgages to another lender.

Today, ptsb and Bank of Ireland announced cuts for new customers only. There is absolutely no justification for this policy other than to exploit those customers who cannot move because of negative equity or mortgage arrears.

It is likely that this discriminatory treatment of existing customers is in breach of the Central Bank’s Consumer Protection Code, whose first General Principle is

“A Regulated entity must act honestly, fairly and professionally in the best interests of its customers and the integrity of the market;”

How can it be fair to offer new customers a lower rate than existing customers?

New customers should not be tempted by these rates. Given the contempt with which Bank of Ireland and ptsb treats their existing customers, you have no guarantee that these rates will not be hiked up in the future.

Both ptsb and Bank of Ireland are charging existing Standard Variable Rate customers 4.5%, but would charge new customers with loans of lower than 50% LTV 3.7% and 3.9% respectively. Those existing customers who are refused the new lower rate can switch to one of the other lenders where they can get rates as low as 3.6%.

These existing customers should show their annoyance, by moving to either AIB or KBC. For example, a borrower whose loan is less than 60% of the value of their home, can switch from ptsb’s 4.5% to KBC at 3.6% , a cut of €1,800 a year, every year on a mortgage of €2000,000. Between legal fees, land registry, valuer’s fees and VAT, it costs around €1,700 to switch. KBC will pay €1,000 towards your legal fees, so the net cost should not be more than €700. With a mortgage of €200,000 a borrower would recover this in less than 6 months.

Borrowers are advised not to be tempted by fixed rate deals which look low

Borrowers avoid the illusory low fixed rates from ptsb and Bank of Ireland. Irish borrowers are still paying around 1.5% more than borrowers in other Eurozone countries. There is no basis for such profiteering and I would expect variable rates and fixed rates to fall further. For example, Bank of Ireland charges up to 4.7% for a ten year fixed rate, whereas the average 10 year fixed rate in other Eurozone countries is 3.09%


Brendan Burgess
 
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Fully agree Brendan! SVR by its' very nature must be the unfairest of all consumer contracts. In effect it allows the banks to amend the rates at any time and this segmentation of the market will further enhance the capacity of the banks to amend rates towards attratcting new clients while penalising existing clients. What other form of consumer contract permits one side to change the pricing structure at any time without reference to or approval from the other side?
 
Hi Brendan

I agree about the unbalanced nature of the contract. Not sure what can be done about something which is often a 25 year contract. The customer could switch if they were not in negative equity or arrears.

SVR is not the problem as such. When they had SVRs, all customers new and existing got the same cuts and increases.

Even with LTVs, they pass on the same cuts and increases to new and existing customers with the same original LTV.

However, now ptsb and BoI are doing a Michael Fingleton on it. They attract in new customers with what appears to be an attractive rate, and then they exploit them once they are in.

Brendan
 
Banks' will state that mortgage holders are free to re-bank to competitors and they are not tied in to the full mortgage term. However:
  • As stated previously there is no current competitive market on SVR's
  • Legal costs of a re-bank are high (some banks many be prepared to help with these)
  • There are no options available to those in negative equity or in mortgage difficulties.
The prevalance of cartel practises has never been adequately addressed for the sector and given the low competition now evident in the banking market there is a strong need for some level of control over practices and pricing that are patently expoliting consumers.
 
Michael McGrath has issued a statement on it as well

Excluding existing variable rate customers from interest rate cuts deeply unfair – McGrath

Banks must be willing to offer more switcher mortgage

Fianna Fáil Finance spokesperson Michael McGrath has said the mortgage interest rate reductions by Permanent TSB and Bank of Ireland for new borrowers are deeply unfair as they will do absolutely nothing to address the continuing unfair treatment of their existing variable rate customers.

Deputy McGrath stated, “Today’s announcement is, at first glance, an overdue injection of some competition in to the stagnant Irish mortgage market. However, the vast majority of customers will not benefit. There are two important issues which the banks must now address. Firstly, they should make it clear that these new lower rates will be available, not just to first time buyers, but also to potential new customers wishing to switch their mortgage from another bank. At the recent Oireachtas Finance Committee hearings with senior bank executives, we were told that the actual level of switcher mortgages was minimal with both Bank of Ireland and PermanentTSB saying they represented only a tiny fraction of overall mortgage activity. Failure to make switcher mortgages available on a widespread basis will only further fuel the view that the banks are more interested in optics than in providing a genuinely competitive mortgage market.

“Secondly, the fact that reductions will only be enjoyed by new customers further highlights the unfair way in which existing customers are treated by the main banks. When AIB reduced its variable rate by 0.25%, it did so for new and existing borrowers. The decision by Bank of Ireland and PTSB to restrict the lower rates to new customers means that the benefit that will be felt is actually minimal. In essence, this can be seen as little more than a panicked reaction by these providers to the negative publicity associated with the continuing excessive rates they charge to their existing customers. Bank of Ireland and PTSB should follow the lead of AIB and ensure fair treatment for all customers.”
 
Hi Sister

But I seem to be one of the few people annoyed by it. And I don't even have an SVR mortgage! I really don't get it.

On Drivetime tonight, the issue was discussed twice - once with Michael Dowling and later with Karl Deeter, and neither of them mentioned the exploitation of existing customers.

Brendan
 
Brendan Burgess said:
On Drivetime tonight, the issue was discussed twice - once with Michael Dowling and later with Karl Deeter, and neither of them mentioned the exploitation of existing customers.
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I find that quite depressing really. Surely the deliberate gouging by a bank of its existing customers is one of the most important angles to the story? Especially given the evident vulnerability of a large portion of the existing customers who have no option to avoid being exploited by switching mortgage providers as they'd have in a properly functioning market.
 
Surely this is common practice across all service providers? UPC, Sky, insurance companies etc all do this and we don't have newspaper headlines about it. Just because its Ireland's favourite topic (mortgages) are we are getting our knickers in a twist.

Don't get me wrong, I agree cuts should be for all, but it isn't just banks that do this.
 
 
username123 said:
Surely this is common practice across all service providers? UPC, Sky, insurance companies etc all do this and we don't have newspaper headlines about it. .
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Interesting point, but this is very different from upc for a number of reasons.

  • upc and Sky give introductory discounts which usually last for 6 months or a year. A new customer of ptsb gets a reduced rate for the whole of the mortgage. Some lenders offer new customers a discounted rate for the first year. That is not as bad, but I still don't like it.
  • It's very easy to switch from upc or Sky. It costs around €1,700 to switch your mortgage.
  • Many people are captive to their mortgage lender. They cannot switch. They may have had arrears within the past 5 years; they may not have less than 90% LTV, they may have started a new job recently and so will not qualify for a mortgage.
  • And of course, the numbers are much bigger. A switcher to ptsb might pay 3.7% compared to 4.5% for an existing customer. That would be €1,600 a year, every year for a mortgage of €200k.
  • ptsb is state owned. A state owned bank should not behave like this.
Don't get me wrong, I agree cuts should be for all, but it isn't just banks that do this.
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I think that if a bank or a utility issued a charter saying that it valued existing customers and would always offer them the best deal, they could steal a march on their competitors. They would lose out some switchers but they would attract some long term loyal customers.
 
Brendan - I will play devils advocate here for a few moments. You know from my previous posts I am one of the people effected from the BOI decision.

But lets say the following:
My existing BOI rate is 4.35%. For new customers the SVR is 4.5% so an increase of 0.15%
There are 'discounts on SVR' available based on customers with certain LTV ratios.

BOI will say that they are not increasing the mortgage rate for existing customers where their LTV does not qualify for a discount, so why should they do the reverse where the LTV ratio does qualify.
Those with lower LTV ratios have the option of switching (at least in theory), although there is a cost associated to it

Which would be worse - move everyone onto the new rates based on their current LTV ratios, or not move anyone at all. I cannot see them being so nice as to leave existing customers on 4.35% and new customers on 4.5% - this could be seen as discrimination of the new customer. The ones where the LTV is higher have less choices open to them, so could be seen as being 'abused'

I genuinely think the real issue here is the cost of moving. It creates a real barrier to entry for switcher mortgages and in effect is the root cause of the lack of competition here. Why does the legal process around registering a mortgage need to be so complex and costly. If you can provide the land registry details showing you as the owner [in part 2 - ownership] and the existing mortgage holder having a charge on the property[in part 3 - burdens], surely it would be possible to facilitate a light touch legal process where the banks exchange the money between themselves and not via a solicitor and a standard land registry update charge was available. If the cost to switch was say 250 euro, it would introduce proper competition into the market, based on LTV.

Those with LTV's which do not avail of the discounted rates would not be able to switch or avail of the new rates anyway even if they were offered to existing customers, but could be charged the higher rates if they were to apply to all customers.

Does this make any level of sense ?
 
Brendan Burgess said:
Hi Sister

But I seem to be one of the few people annoyed by it. And I don't even have an SVR mortgage! I really don't get it.

On Drivetime tonight, the issue was discussed twice - once with Michael Dowling and later with Karl Deeter, and neither of them mentioned the exploitation of existing customers.

Brendan
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I heard that too. I was also struck by the two of them talking very much pro-mortgages, pro-lending, pro-lenders and then coincidentally adverts straight away for BoI mortgages and I think another provider too.
 
gnf_ireland said:
But lets say the following:
My existing BOI rate is 4.35%. For new customers the SVR is 4.5% so an increase of 0.15%
There are 'discounts on SVR' available based on customers with certain LTV ratios.

BOI will say that they are not increasing the mortgage rate for existing customers where their LTV does not qualify for a discount, so why should they do the reverse where the LTV ratio does qualify.

Those with lower LTV ratios have the option of switching (at least in theory), although there is a cost associated to it

Which would be worse - move everyone onto the new rates based on their current LTV ratios, or not move anyone at all. I cannot see them being so nice as to leave existing customers on 4.35% and new customers on 4.5% - this could be seen as discrimination of the new customer. The ones where the LTV is higher have less choices open to them, so could be seen as being 'abused'
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I don't fully follow all the points you are making, but the banks make this point, which I presume is the point you are making:

We issued a mortgage to Johnny at 70% LTV @say 4%
We issued a mortgage to Mary at 90% LTV - also 4.5%

Johnny's house has gone down in value and he is also in arrears, so his LTV is now 90% - we do not up his rate to 4.5%.
Mary's house has gone up in value and she has paid off some capital, so her LTV is now 70%. But we are not giving her the lower rate, just as we are not increasing the rate for Johnny.

Why do banks charge a lower rate for lower LTV mortgages? Because they are lower risk and they need to put less capital aside for them. So, if we look at Mary, she is now more profitable for the bank and less risky, so they should lower her rate. In a competitive market, they would have to do that as Mary would simply switch to another lender.

So should the bank be consistent and charge a higher rate for mortgages which have risen in LTV since they were taken out? In effect , this is what they have actually done. The banks pushed up the mortgage rates for all LTVs and all SVRs since 2010. The rate of a 90% LTV now is much higher than a 70% LTV was when the mortgage was taken out.

And this is the key point, the mortgage rates are too high for all borrowers. At the higher LTVs they are about 2% higher than in the rest of Europe.

Most of the time, gradual house price increases combined with capital repayments will reduce the LTV of a mortgage. It will rise only in exceptional circumstances, although the last few years have been one of those exceptional periods.
 
Gumbyman said:
and then coincidentally adverts straight away for BoI mortgages and I think another provider too.
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It is entirely coincidental. Just to reassure you that neither Mary Wilson nor Karl Deeter would have the remotest idea what ads were going to be on in the breaks. Even if they did, they would not alter their commentary one whit. In fact, if they got a call from BoI about their coverage, that would highlight the issue for them and make it more likely that they would cover it.
 
Brendan Burgess said:
In a competitive market, they would have to do that as Mary would simply switch to another lender.
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Yes, but is the real barrier to moving not the associated cost of moving the mortgage. I don't see how it is practical for most people to move, unless there is a decent gap between their existing rate and the new rate being offered.


Brendan Burgess said:
In effect , this is what they have actually done. The banks pushed up the mortgage rates for all LTVs and all SVRs since 2010.
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Yes we all agree with this in general and this is another discussion. The SVR rates in Ireland are crazy compared to Europe, but how much of this is direct result of some seriously low tracker mortgages existing out there, which are well below European average. I am not saying it is right
 
I rang BOI today to enquire about their new fixed rates for existing variable rate mortgage holders. If my mortage has an LTV of <75% I can qualify but I have to get an up to date valuation done by someone on the banks panel at my own expense. I reckon the rate reduction if I qualify will be worth €300 approx per annum. The valuation will cost be about a third of that. These rate cuts should have been passed onto customers without this requirement. I am so annoyed with BOI's disregard for it's existing customers.
 
Threadser said:
These rate cuts should have been passed onto customers without this requirement.
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Threadser - I am not sure what your argument is here. Of course BOI will want to see an updated valuation to prove your property has a LTV of less than 75%. Otherwise they are either using old data (original valuation when you got your mortgage) or basing it on some index value.
I personally don't think this is an unreasonable ask, but maybe I am in the minority here

The issue I have with BOI is that as an existing customer on the 4.35% variable rate, I cannot move onto the current 3.9% rate, even if I prove I have a LTV of <60% (ie supply an updated valuation paid for by myself). If I was to take one of their fixed rate options for a LTV <75%, when that term expires I would move onto a 4.3% variable rate, even though new customers would move to 3.9%.
 
Myself and the OH have been with BoI for 30 years and we are moving current account and mortgage on principle, not going to ring to enquire about a Lower rate.

LTV less than 25% luckily.
 
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