Banks cut down on their mortgage rates to compete for borrowers

By January 10, 2017Articles
In an article published on 26 August 2016 by the Irish Independent, Charlie Weston discusses the mortgage rate battle that ensued among the major banks in Ireland as they cut down on their mortgage prices to attract borrowers.

KBC’s mortgage rate cut kindles fierce competition

The KBC Bank has just raised the bar higher as the bank cuts back on its variable and fixed rates. The new rates which amount to as low as 2.9pc will be applicable to both new and existing clients. This turn of events came about as an Oireachtas Committee debated over a new mortgage bill after variable rates hardly budged the previous year.


Lower rates for both new and existing clients

According to the Irish Independent, KBC’s move to cut back on its rates to between 0.1pc and 0.6pc has raised the stakes of the mortgage market to a higher level. Meanwhile, the bank’s existing clients will also benefit from lower rates depending on their current home equity. KBC had faced criticisms in the past for restricting rate cuts solely to their new clients. If  the bank’s standard variable rate will remain at 4.25pc, KBC is however clearly shifting gears as it now gives equal treatment to both their old and new clients when it comes to the rates they offer. They now offer lower rates based on the client’s property value and the loan amount, regardless of whether the client is new, a switcher, or an existing one. Interest rates for new and existing clients will be based on the amount of their deposit and their outstanding home equity. So for an existing customer who has a mortgage amounting to €250,000 and loan-to-value of around 80pc to 90pc, the bank will offer a 3.5pc rate. But if the said customer chooses a one-year fixed rate of 2.9pc, which is the lowest in the market according to KBC, the repayment would be €170 a month. The 2.9pc rate applies only to those with a 90pc or less loan-to-value. The new rate is a big mark down from the current 4.25 pc and will cut off as much as €100 off the monthly repayment.

Extra discounts on top of its lower rates offer

With the new lower rates also comes an extra discount for clients using the bank’s current account whereby the homeowners will only have to submit a valuation from a valuer that has the bank’s approval. Meanwhile, for those with a loan-to-value that ranges from 80-90pc, the variable rate will be marked down by 0.15 pc which means that the rate for new and existing clients is at 3.5pc. The new clients will benefit from the new rate by next Tuesday while existing clients may apply for the lower rates starting 1 December.

KBC’s move places rival banks under pressure

It is expected that KBC’s move in lowering their mortgage rates will pressure other banks such as AIB and Bank of Ireland, Ulster Bank and Permanent tsb to make countermoves to up their stakes as well in the highly competitive mortgage market.

Rewarding loyal clients and attracting new ones

There are about 300,000 homeowners on variable rates, who are paying about 1.5pc higher than in other eurozone countries. KBC slashed its rates for both their new and existing borrowers starting in May. The bank’s Director of Product, Eddie Dillon explained that the move is their way of rewarding the loyalty of their established clients and at the same time to attract home buyers and switchers to transfer to KBC. They also offered first-time buyers, switchers and movers €2,000 towards professional fees. Currently the offer is only available to switchers. In addition, KBC also extended its deal for 50pc off home-insurance costs for the first year and the offer is good until the end of this year.

Cutting of mortgage rates – here to stay

According to Central Bank’s figures, variable rates have lowered by 0.3pc to an average of 3.47pc in the past year. Moreover, Brendan Burgess from the Fair Mortgage Rates Campaign commented that it has come down by more than 1pc over the past two years. The campaign has been calling for cuts on mortgage rates at that same period. Meanwhile the Bank of Ireland has not lowered its variable rate but it introduced a new range of lower fixed rates. Mr Burgess added, “Bank of Ireland has not cut its variable rates, so many of its customers are still paying 4.5pc. Permanent tsb has not cut its SVR (standard variable rate), so many of its customers are still paying 4.5pc. Most lenders have cut mortgage rates, but only by a fraction more than their counterparts in other eurozone countries.”

Owen Callan, the Investec Bank analyst concluded with some good news for consumers saying that it is likely for banks to continue to lower their rates.

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