Mortgage cuts still not enough

Banks have been slashing their rates... but they have a long way to go, reveals financial expert

RECENT mortgage rate cuts, which seem to indicate a level of price competition between banks, still leave them a long way off their European counterparts, a financial expert has said.

The news that Bank of Ireland had cut a number of its fixed mortgage rates, just days after AIB had slashed its standard variable rate, was hailed yesterday as being ‘good news for Irish borrowers’.

But Michael Dowling, an independent financial adviser, said he interpreted this move as a response ‘to what has happened in the market’.

‘AIB, KBC, EBS have all reduced their rates recently. This is Bank of Ireland reacting to what their competitors are doing,’ he said.

‘Secondly, to be fair, the rates they are offering are very competitive. They are offering 3% on two-, three- and five-year fixed-rate options, irrespective of the loan-to-value ratio.

‘So that is very good, particularly for first-time buyers, because typically they’d be borrowing 90% and you don’t usually get the best rates when you are at a 90% loan-tovalue ratio.

A spokesperson for Bank of Ireland said the reduction on its fixed-rate mortgage offering came into effect on Thursday. They said the interest rate for its range of one-, two-, three- and five-year fixed-rate mortgages was now 3%, irrespective of loan to value.

AIB recently introduced changes to its standard variable rate and loan-tovalue charges.

Its standard variable rate is down to 3.15%, the ‘fifth consecutive reduction in three years’. Robert Mulhall, AIB’s Managing Director of Retail and Commercial Banking in Ireland, also said it had cut its standard variable rates by 1.25% over three years.

A spokesperson for KBC said: ‘Customers with a loanto-value less than 60% can now fix the interest rate on their mortgage for as low as 2.95% for ten years while customers with a loan to value less than 80% can avail of a rate of 2.99%.’

Meanwhile, Permanent TSB recently implemented a reduction of 0.15% across the current three- and five-year fixed rate products in two loan-tovalue bands. Ulster Bank said their 2.6% fixed four-year mortgage rate is ‘the lowest in the market’.

However, Mr Dowling said a report from the ECB this week ‘shows that average Irish rates were much higher than what is being charged in the European… EU area’.

He added: ‘So while the rates are competitive, and they’re good, they’re still a long way off what is available from our European counterparts. And it is encouraging to see, but we still should have cheaper rates – relative to what the cost of money is for banks at the moment.

‘It’s a step in the right direction, but we are a long way to go if we are to compete and offer rates that are available throughout Europe.

‘But any reductions are to be welcomed, there’s no question of that.’ emmajane.hade@dailymail.ie

‘It’s a step in the right direction’