Key Post Evaluating the Bank of Ireland 2% cash back

Brendan Burgess

Brendan Burgess

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Update 30th August. BoI has now dropped the clawback of the 2% cash back, so this post is no longer valid.

Brendan


How should a new customer evaluate Bank of Ireland's 2% cash back?

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Offer details:

  • Cash back offer available on Mortgages drawn down between 3rd June 2015 and 31st Dec 2015 - regardless of the rate, fixed or variable.
  • Once the mortgage is drawn down, we will arrange a payment equal to 2% of the drawn down amount direct into the customer’s mortgage paying account.
  • Payments will be made within 45 working days of the mortgage draw down.
  • The Bank reserves the right to seek refund of the payment from the customer if the mortgage is paid back within 5 years.(My emphasis)
If you fix for two years, what rate will you pay for the following three years before you are free to switch to another lender?
From here:

At the end of the fixed rate period, existing customers on a fixed rate can choose from our range of fixed rate options or roll to the prevailing New Business Variable rates.

Note: The same wording is used for switchers and for movers.


New customer rates as of July 2015

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So is the Bank of Ireland 2% rate worth going for for first time buyers?

You are making a 5 year commitment as they will seek refund of the 2% if you switch within 5 years.

Bank of Ireland has the highest variable rates of all lenders. Their policy is to encourage people to fix by making variable rates prohibitively expensive. They are about 0.4% more expensive than AIB's variable rate.

So let's say you switch to a fixed rate for three years after the two years is up.

Bank of Ireland is competitive today for fixed rates over three years for LTVs <80%

BoI 3.6%
AIB 3.65%
ptsb 3.7% ( currently limited to new customers only)
Ulster Bank 3.75%
 
The big problem with Bank of Ireland is that it has different rates for new customers and existing customers.

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Bank of Ireland will be able to fleece you. If you switch to another lender, you will have to repay the 2%. You would need to save around 0.7% a year from switching to justify that. And, you would need to have the 2% cash available. If you don't have that, you won't be able to switch.
 
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Let's compare the Bank of Ireland offer with AIB as AIB treats its existing customers, more or less, the same as new customers and has the lowest variable rates for high loan to value customers.

Let's say you fix for two years with both and then go onto a variable rate

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Now let's say you fix for two years and then fix for three years
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For the Variable rate that you're looking at for KBC. You've said 3.5%
What happens when you're no longer a new customer? i.e. after a year
Do you go onto the existing customer rates? https://www.kbc.ie/Help/Mortgage-Support

I'm sure it's an easy question to ask. I've gotten conflicting answers from posters on different threads. If you ask them can you let us know what they say. If they bump you up to the stupid rates after a year then your decision is easy :)
 
I spoke to KBC two days ago.

After your fixed rate is up you will be able to avail of the KBC prevailing existing customer rates.

Today's existing customer rates range from 3.9% to 4.3% (assuming current account discount)
 
Is it not a bit strong to describe the BOI cash back offer as a "con"?

The terms of the offer are transparent and I would imagine it suits a lot of applicants that are struggling to meet deposit/LTV requirements or the various other costs associated with purchasing, renovating and/or furnishing a property.
 
Hi Sarenco

I think that the terms of the cash back are very clear to a professional solicitor or accountant or someone who reads askaboutmoney and who understands percentages.

But the vast majority of people don't fall into this category. They simply see that they will get 2% cash back from BoI which is more than they will get from AIB. So they go for it.

Is it suitable for a borrower who is at the edge of the deposit requirement?

I am a first time buyer who wants to buy a house for €100,000. I have €10,000, so they will lend me €90,000.
They give me €1,800 back immediately which I can use to pay the solicitor or for furniture.

In effect, they are lending me €1,800 and charging me a much higher mortgage rate for that privilege.

I see where you are coming from, but I would still be very slow to recommend BoI to such a buyer. If they are on the cusp of affordability, they probably should not be buying yet. There is an increased risk of going into arrears and if they do, they are prisoners of BoI's higher rates for at least the next 5 years.

I think that there might be a practical issue here as well. BoI's underwriting criteria are often much stricter than other lenders. So I think that these marginal cases might not get a BoI loan.

Brendan
 
Hi Brendan

I think you may have misunderstood me. I don't disagree with your analysis but I can see why the offer would be attractive to some borrowers.

I think everybody knows there's no such thing as a free lunch but some borrowers might be happy to pay a somewhat higher rate in exchange for the upfront cash. As long as the terms of arrangement are clear, I don't think it's fair to describe it as a "con". That doesn't mean I would recommend the deal to anybody.
 
The fixed rate is 3.1% for less than 80% and I think it's 3.45% for 80-90%, after that the current roll to rate appears to be 4.2% assuming you don't negotiate a better rate.
 
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