Property & Mortgages

Banks under pressure to cut rates in mortgage price war

mortgage price

More banks are coming under pressure to reduce their mortgage rates after AIB announced a number of reductions

More banks are coming under pressure to reduce their mortgage rates after market leader AIB announced a number of reductions.

The focus is now on Bank of Ireland and Permanent TSB, whose rates are out of line with competitors.

AIB and its Haven division announced reductions to three and five-year rates of 0.3pc.

AIB was the largest mortgage lender last year with a market share of around 32pc, according to stockbrokers.

Other lenders, including KBC and Ulster Bank, have also reduced rates, as the mortgage war intensifies.

Leading mortgage broker Michael Dowling said there was now scope for huge cuts from Bank of Ireland and Permanent TSB, while AIB could reduce its rates further.

Five-year fixed rates of both Bank of Ireland and Permanent TSB are now up to 0.6pc behind those offered by rivals Ulster Bank and KBC. Their variable rates are well ahead of those offered by AIB, Finance Ireland and ICS Mortgages.

He said fixed rates could even come down to as low as 1.99pc by the summer as the rates war rages on.

There is definitively pressure on Bank of Ireland and Permanent TSB to reduce their rates now that AIB has moved. Neither can sit by and rely on its cash-back deals when its rivals have much cheaper rates, added Mr Dowling.

He said Permanent TSB’s five-year fixed rate was 2.8pc, but rival Ulster Bank offered a rate of 2.2pc.

Bank of Ireland offers a green mortgage discount of 0.2pc for homes with a building energy rating of B3 or better. But even with that discount its five-year rate is 2.8pc, making it some 0.6pc higher than that offered by Ulster Bank. This means there is scope for cuts of 0.5pc, Mr Dowling said.

He added that the five-year swap rate had fallen by 0.5pc recently. This means there is scope for residential mortgage rates to fall to 1.99pc by the summer, he said.

Bank of Ireland chief executive Francesca McDonagh, when asked about the current mortgage market, said, I’ve worked in a bank in two price wars in other markets, and they are often characterised by irrational pricing behaviour and originating business that is not profitable and from our perspective we don’t see that.

Today we have over 90pc of new business is fixed rate mortgages, at 2.9pc with cash-back that is very attractive for customers who really value the cash-back. We also offer a lower rate, without cash-back. If they are purchasing a green rated home, that pricing would go down to 2.3pc [with no cash-back] for five years. That is very competitive, said McDonagh.

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