THE Consumer Association has called for more fair play on the part of mortgage lenders. In its latest edition of Consumer Choice, a mortgage survey shows that existing mortgage holders with AIB, Bank of Ireland, EBS, First National, ICS, Irish Life Homeloans, Irish Permanent, National Irish Bank and the TSB continue to subsidise discounted mortgages for new customers. The survey found that existing customers pay from 4.0 per cent (Irish Permanent) to 14.6 per cent (Bank of Ireland) more in cash terms than new customers on discounted variable rates over a customary 12-month period. In cash terms the new Bank of Ireland customer with a £50,000 mortgage would pay £612 less in the first year than an existing customer with the same size loan. New customers who take out fixed-rate loans also enjoy discounts in the first year above those with existing variable contracts.
The way in which fixed rates are priced, the costs of prematurely ending a fixed contract or even accelerating capital repayments also came in for criticism in this latest survey. In the latter case, with the exception of two lenders - Bank of Ireland and ICS - all other lenders charge "substantial redemption penalties, even when small amounts are paid off the loan."
About 55 per cent of customers are now opting for fixed-rate contracts, but aside from the penalties associated with breaking a fixed contract early (these must be disclosed at the onset of the contract), charges are also imposed on borrowers who wish to `break' their fixed contract if they move house or move to another lender.
The survey also warns about `switch' fees - charges imposed by six lenders - AIB, First National, Irish Permanent, Norwich Irish, TSB and Ulster - to existing borrowers if you move from a variable rate to fixed rate loan. These can range from £50 (AIB) to as high as £175 (Ulster Bank). Since not all lenders charge these fees, the Consumer Association regards them as "deterrents" to switching and says they should be abolished.
Under the new Consumer Credit Act 1995 lenders must explain beforehand to new customers the size and nature of any fees associated with breaking a fixed- rate contract. Customers with fixed-rate contracts set before the Act can be subject to discretionary charges "at a level which is uneconomic .... to exit from." The survey found that break fees (for one fixed-rate scenario provided by the association) from lenders who are obliged by the Act to provide the fee charges ranged from as low as £237 (AIB) to £3,905 (Norwich Irish).
The Association concludes that "Consumers deserve flexibility, simplicity and most importantly, fair play when it comes to mortgage interest rates." This survey, "has shown that many consumers are not getting equitable treatment."
Consumer Choice magazine is only available by subscription at a cost of £47 per year from the Consumer Association of Ireland, 45 Upper Mount Street, Dublin 2. Tel. (01) 668 6836.