THERE has been always been more than a nagging suspicion that existing mortgage holders have been subsidising the sweet heart deals offered by banks and building societies to win new customers.
But now Consumer Choice magazine, by quantifying the size of the subsidies, has raised a number of questions that need to be answered. In short, many customers are not getting equal treatment.
Every potential mortgage holder knows - or should know - that it pays to shop around. In many cases, it is not always easy to compare different schemes, particularly as potential mortgage holders are coaxed and titivated into taking up a house loan. But with sweet heart deals, they should remember that they may save now, but pay a lot more later, as they become existing mortgage holders. It can be double edged sword.
Some of the findings are quite startling. The two main banks, Bank of Ireland and AIB, offer the biggest subsidies.
Consumer Choice claims that existing (variable) mortgage holders in Bank of Ireland pay 14.6 per cent more in cash terms on their mortgages than new customers taking up the discounted rate. These sweet heart deals can appear quite enticing. A new mortgage holder with the Bank of Ireland, for example, with a £50,000 mortgage over 20 years, on a special low variable rate, pays £612 less in the first year, according to the survey. The subsidy is 12.0 per cent for AIB, 10.6 per cent for EBS Building Society, 8.2 per cent of ICS, 8.1 per cent for Irish Life Homeloans, 6.2 per cent for TSB Bank and 4.0 per cent for Irish Permanent.
But not all lending institutions have jumped onto this clamour to increase market share band wagon, ACC Bank, Irish Nationwide Building Society, National Irish Bank, Norwich Building Society and Ulster Bank have all rightly stayed clear, with new and existing customers paying the same rates.
The survey also explores other contentious issues. What, for example, does it cost to redeem a mortgage early? It can be quite expensive, the survey found. Only two lenders, Bank of Ireland and ICS, allow the payment of lump sums on fixed rate mortgages, but the payment is limited to 10 per cent of the outstanding balance in each 12 month period.
The redemption fees vary considerably. The 13 lenders in the survey were asked if there was a redemption fee for a new customer who gets a five year fixed rate on £50,000 over 20 years and two years later wanted to make a £2,000 once off payment. The fees ranged from £15 (AIB) to £156.20 (Norwich Union). Some lenders have a set fee, other base their fees on the amount of money they stand to lose by the payment.
And what about switching (variable fixed variable) fees? Six leaders - AIB, First National Building Society, Irish Permanent, Norwich, TSB and Ulster Bank still persist in charging a switching fee. This ranges from £50 for AIB, to £175 for Ulster. It is hard to justify these fees. The institutions could argue that a fee is needed to cover administration costs but this hardly stands up as the other seven institutions do not charge.
There is clearly a need for greater flexibility for mortgage holders to switch banks or building societies and to switch into different types of mortgages without onerous charges. Up to now it would have been difficult for borrowers to raise mortgage outside the State because of currency exchange risks. However, with the single currency fast approaching, this will soon be an option open to mortgage holders (and other borrowers).
Mr Willie Fagan, director of Consumer Affairs has already called for the market to be opened to allow the transfer of loans (mortgages) without cost. Any move in that direction would make Irish financial institutions more attuned to the needs of existing mortgage holders.
