Time the bank owners (that’s us) pushed for real value on mortgage rates

Getting free money upfront through mortgage ‘cashback’ offers is very appealing. It used to come at a high price: the lenders offering these deals – PTSB and Bank Of Ireland – also had the highest interest rates.

The 2% cashback sum was a juicy carrot yet it could end up costing you several times more in extra interest by the time the mortgage was paid.

Now a lender with better variable rates – EBS – has entered the fray with its own 2% cashback deal. How does it measure up? EBS may not have the lowest rates but it is in the top three. Even so, the seemingly tiny 0.2% difference between EBS and cheapest lender AIB would still cost dearly in the long run.

After taking account of the cashback deal (and the fact that AIB also offers a lower flat sum of €2,000) you’d end up €4,500 worse off with EBS over 25 years. But that is a long time and the cashback sum is upfront, which makes a big difference when you’re struggling to pay a mortgage or raise a family.

AIB owns EBS (both are owned by the State, i.e. us). So its latest move is part of a joint strategy to counter Bank of Ireland/PTSB’s cashback deals.

AIB will keep offering cheap rates and long-term value while junior partner EBS will mop up borrowers who prefer upfront cash.

EBS will be helped by the fact that, unlike PTSB, it won’t demand repayment of the cashback sum if you pay off the mortgage within five years.

AIB usually puts pressure on other lenders by being first to drop interest rates. It’s shadowed by KBC’s lowest rates. But these are not available to KBC’s existing customers, who are penalised for their loyalty.

To avail of KBC’s very lowest rates you must also open a current account, which may not suit everyone. Otherwise, KBC rates are much the same as at EBS, without the cashback offer.

So kudos to AIB/EBS for leading the field and injecting some competition into the moribund mortgage market.

Perhaps this is because AIB is State-owned and responds to Government pressure. But the State also owns most of PTSB, which is far from the most competitive lender.

PTSB usually focuses on marketing. For example, the rate it quotes for 80% LTV mortgages is 3.2% not the rate you see in our table. And this appears on some unwary mortgage tables, making it seem fantastic value.

What’s not mentioned prominently is that 3.2% becomes 3.7% after a year – one of the dearest on the market! Maybe it’s time PTSB’s owners – us, via the Government – told it to follow AIB’s example and offer real value instead of pulling the wool over our eyes with marketing tricks like this?

Note: PTSB’s cashback offer ends on June 30. Bank of Ireland’s ends on September 30. EBS’s ends on October 31. Offers may be extended.