How cash-back keeps mortgage rates high for existing customers

Brendan Burgess

Brendan Burgess

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ptsb is launching a new fixed rate product which does not give cash back.
BoI did the same some months ago.

Both products are restricted to new customers only.

This allows these two lenders to keep the rates for existing customers much higher than they should be. They exploit the inability of some customers to switch and the inertia of other customers.

The differences are stark. Here they are for a €400k mortgage. I chose €400k as that is the minimum figure to qualify for the BoI product.

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For a fair comparison shouldn't you include the cash back? Cashback deals can work out cheaper if people go into it with their eyes open and are prepared to switch lender again at the end (or sooner) of their fixed rate term. The problem of course is most people don't do this.
 
Hi Warrior

You miss the point.

An existing customer of BoI or ptsb who never got cash back is paying a very high mortgage rate and can't avail of the lower rates on offer to new business as they can with all the other lenders.

Brendan
 
That's a fair point, but how long have BOI offered cashback deals now, 6 or 7 years? If you took a mortgage with BOI before cash back was offered and you stayed with them all this time paying a lot higher rates than were available in the market, then the main issue is you that you never bothered to switch. There's probably a minority of this cohort who couldn't switch for a multitude of reasons and they are the ones most impacted by what you're highlighting, but for the majority, the ones at fault are themselves.
 
Thirsty said:
So it's the borrowers fault?

You assume that all mortgage holders are on a level playing field; circumstances change & not everyone has the ability to take out a new mortgage every few years.
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Did you stop reading mid way through my comment?

Coldwarrior said:
There's probably a minority of this cohort who couldn't switch for a multitude of reasons and they are the ones most impacted by what you're highlighting, but for the majority, the ones at fault are themselves.
Click to expand...
 
Brendan, sounds like you got half of what you wished for!

Should the regulator just ban new customer rates?

The banks are basically taking advantage of customers that are either;

Inert (or lazy! If you want to be less kind)
Uninformed
Unable to switch due to their circumstances

I guess most customers actually fall into the top two buckets but I don't know though.
 
SPC100 said:
The banks are basically taking advantage of customers that are either;

Inert (or lazy! If you want to be less kind)
Uninformed
Unable to switch due to their circumstances
Click to expand...
But this is a feature of thousands of products in hundreds of markets!

Introductory offers on gym membership, broadband, etc. Why single out mortgages?

In economic terms, discounts for new customers can make overall consumer welfare highest.

Different customers have different willingness to pay and search for other products.


If you are curious look up the concept of "consumer surplus".
 
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