How to motivate borrowers to switch to a lower rate with their existing bank?

Brendan Burgess

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45,000 ptsb customers who could apply for a lower rate, have not done so.

In total, at least 150,000 customers could get a better deal from their own lender just by asking.

51,000 ptsb customers are paying 4.5%
40,000 BoI customers are paying 4.5%
42,000 KBC customers

AIB customers on SVRs can switch to an LTV - don't know how many.
And EBS customers on SVR or LTV can fix at a lower rate.

We have 600,000 mortgage holders in Ireland
300,000 have trackers
100,000 - 150,000 have variable rates which are probably the lowest available from their lender
150,000 to 200,000 have variable rates which they could reduce without switching lender.

Any ideas on how we can get through to these 150,000?

Facebook campaign?
Ask the banks to advertise it? ptsb has written to their customers three times and only 25% have applied for the lower rate.

It's so frustrating. A few of us have worked hard on the Fair Mortgage Rates Campaign. We have made limited progress. But even that progress is not as good as it could be if people would just pick up the phone and ask for a better rate.

Charlie Weston gave it a good lash here:
125,000 mortgage holder "afraid" to look for a better rate

Brendan
 
People don't trust their banks, with good reason. So if they get a letter saying that they can cut their repayments by fixing or by opening a current account, they probably will ignore it.

But many of these mortgages were set up by mortgage brokers. So why are they not writing to their customers saying "You can get a lower rate without even switching." ?

Brendan
 
Given that banks now have to write to SVR customers to let them know there might be a better rate, should they be forced to do more? Should that letter have to tell them how much they could save and give examples?

I think there are 2 factors at play: customer inertia (we see it with every utility type), and simple fear / not understanding.

People think the banks know more than they do. They don't. The financial crash proved that. Coupled with the discussions we've had along with @Sarenco over the past few months about fixed rates, and helping people understand fixed breakage fees, there needs to be an education of the options to move to lower LTV, fix rates, and switching.

It's not in the banks interest to promote this. The profit from those who don't take action.

Here's an example of what I would suggest for EBS customers after the announcement of their new fixed rates.
https://www.askaboutmoney.com/posts/1535049/
 
The broker angle is another good question. They are paid by the bank, not the customer, so they're conflicted.
Does anyone know how broker commissions are now scheduled? Is it all up front, it over a period of time?
 
The commission is paid up front. They do not get a trailer commission as they do in selling investment products.

But there is often a clawback of the commission if the borrower switches to another lender within, say, 5 years.

But there would be no clawback if a KBC customer stayed with KBC but moved to the new business rate.

Brendan
 
RedOnion said:
Given that banks now have to write to SVR customers to let them know there might be a better rate, should they be forced to do more? Should that letter have to tell them how much they could save and give examples?
Click to expand...

So how about a letter like the following:

Dear Red

We note that you are still on our Standard Variable Rate of 4.5%

As you have a mortgage of €200,000, by switching to one of our other rates you could reduce your monthly repayments as follows



So you can save at least €22 per month and up to €85.

Yours

Jeremy
 
Something like that, but I think it should focus on total cost of credit rather than monthly saving. Switching from 4.5% to 3.7% saves me 133 per month in interest in the first year. By switching to a lower rate, a greater portion of my repayment goes towards capital.

I realise people focus on the monthly repayment amount.
 
I hate the cost of credit idea, but it is probably more meaningful to most people. So something like the following

"Another way of looking at it is, if you qualify for the <50% rate, you will save a total of €20,400 in interest over the next 20 years.

Or you could leave your repayment the same, and cut two years off your mortgage."

Brendan
 
I probably tend to over complicate things a bit.
I'm not sure which people understand better, but the reason banks would prefer to show reduced payment amount vs interest impact is it hides to amount of additional profit they are making. In the example above the 133 per month is pure profit to the bank. The 85 figure masks this a little bit.

Either way, the total is the same over the full term, it's just a timing issue if the repayment of capital.
 
Hi Red

Whenever there is a rate cut, journalists ask me "How much will the repayments reduce by?" I have given up explaining that it is the higher figure of interest saved which is more important.

People understand repayments - not interest rates.

Brendan
 
Just a viewpoint. With the changes in property price and turnover in rural areas the price of property is unknown. As far as I was concerned I was in negative equity. A house in my area was put up for sale and I thought they would never achieve the asking price. When it went sale agreed I made enquiries and discovered I was close to <50% LTV. Made a lump sum payment off mortgage and have now moved from 3.4% to (soon to be) 2.75% following submission of valuation report. Up to then I had no interest in a valuation as I did not want to know the bad news.
 
It's great to get insight @tommygirl
The bit I find interesting is that for some lenders, borrowers could be on a better rate even if they're in negative equity, but don't seem to realise it.
It's easy for me to look at it from a pure calculation point of view, so always interesting to see what thought process people go through.
 
We had our house valued last year and moved from 4.5% to 4.3% with PTSB. Just talking to a colleague today and they're only doing it now. They didn't trust the bank, still don't, but they want a lower rate. They felt that the bank wasn't going to offer them a saving unless there was a catch. They're not in negative equity so I can't understand why they're not leaving PTSB altogether. We're stuck unfortunately. They've offered us 4.2% to fix for 2 or 3 years.
 
@Brendan Burgess I think we need to try break this down into a few scenarios and see if we can come up with ideas around how to deal with each of the groups.. I imagine each group requires a different approach

1. Those who need to do a valuation and apply to the bank
2. Those who need to fix
3. Those who need to open a new bank account
4. Those who simply need to ring the bank
5. Those who are or may be caught up in the tracker scandal, and cannot take any real action until it has been resolved.

Do we have any idea on the demographics behind those most likely to be impacted by this, as may assist us in working out how to reach them?

Is there something we can do around the 4% - if you are on a mortgage rate > 4% you need to contact <?> to see what can be done to lower your mortgage repayments. Any reduction, no matter how small, saves you money ?
 
capslock said:
They didn't trust the bank, still don't, but they want a lower rate. They felt that the bank wasn't going to offer them a saving unless there was a catch.
Click to expand...

Interesting - is there a way to play this around the other way

>> Fed up of the bank having the upper hand?
>> Fed up of always feeling the bank is out to maximise their profits at your expense?
>> Maybe its time for you to turn the tables on the bank
>> Empower yourself
>> Find out how you can use the bank to lower your interest rate
>> And when you have used them, move onto the next bank and do the same

*PS I don't work in Marketing so would need to be cleaned-up massively, but do you get the idea... *
 
capslock said:
We're stuck unfortunately. They've offered us 4.2% to fix for 2 or 3 years.
Click to expand...
Personally I would take it
Scenario A - you cannot switch for 2-3 years because you need to get from negative equity to around 80% before you can switch
Scenario B - you get to 80% LTV, chances are the break free will be zero or minimal anyway
 
I recently got my house valued and went KBC to ask for a lower LTV rate. I got my rate reduced from 4.0% to 3.1%. My LTV was less than 50%. Savings of eur160 per month.
 
capslock said:
They didn't trust the bank, still don't, but they want a lower rate. They felt that the bank wasn't going to offer them a saving unless there was a catch.
Click to expand...

I think that this is the key.

People are reading every day about people who got deals which resulted in them losing their trackers. So they are suspicious of banks bearing gifts.

What made your friend go for it in the end? Was it your experience?

Brendan
 

They are the cohorts ok.

Opening a bank account with KBC or Ulster Bank must be about the easiest no-brainer. The customer gets a 0.2% cut immediately. On a €200k mortgage, that is €400 a year. If a bank said, "Open an account with us, and we will lodge €35 a month into it.", I imagine that there would be a rush.

I wonder if saving €400 a year doesn't matter to people. If they have a house worth €200k, it went up in value by €20k last year. So what is €400 in the greater scheme of things?

They wouldn't pay €10 for a pint if they knew that they could get it in an equally good pub for €4.50. But it seems that we don't mind paying interest.

Brendan
 
Brendan Burgess said:
I wonder if saving €400 a year doesn't matter to people. If they have a house worth €200k, it went up in value by €20k last year. So what is €400 in the greater scheme of things?
Click to expand...

I genuinely don't think people who own houses are concerned the price is rising by 20k. I know I don't -unless of course you are in negative equity which is a different matter.
I would see a rise in price as a bad thing - it will cost me more in property tax

I think people are slow, in general, to open current accounts with other banks. So much to move, so many people to inform - they are probably nervous about the hassle... and it is not fully hassle free !

I think the savings needs to be clearly called out - make people want to switch.


I am wondering if it would be possible to encourage some media students to make a you tube video on two couples going out to buy toys for Christmas - one splashing out and the other being very careful. The 'splashing out' couple said we had a good year on the mortgage - saved x by pushing the bank and just switched banks and got 3000 bonus for doing so. Its going to be a good Christmas after a few very tight ones !
 
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