Alert for AIB customers - AIB now exploiting inertia of existing customers

I have long recommended AIB as the best buy for mortgages on the basis of their long history of treating customers fairly.

As I said in this thread.

I would recommend AIB or Avant as the lenders most likely to be the best value over the full term of your mortgage.

AIB has a long history of treating customers fairly when it comes to mortgage rates

1. They allow existing customers to avail of the best rates offered to existing customers
2. They have a comparatively low variable rate
3. They do not engage in gimmicks to trick customers.

Click to expand...

But I was really shocked when I did a comparison of rates to see that they are exploiting the inertia of existing customers by having very high rates for non-green customers which comprise the majority of borrowers.

For example, for customers with an LTV of < 80%



If you are an existing AIB customer who does not have a green mortgage and your fixed rate is coming to an end, you will default to a variable rate of 3.95%.

If you want to fix for say 5 years, you will pay 4.8% which is a full 1% higher than ptsb or BoI and 1.5% higher than AIB's green rate.

AIB knows that a lot of customers won't shop around and will just choose a fixed rate not realising that they are paying way above the market rates.

There is no justification at all for a discount for green rates. Most of AIB's cost of funds comes from deposits. They don't pay less for green deposits than non-green deposits.

Even if there is some justification that I am missing, then the 0.2% discount given by BoI or ptsb might be appropriate.

But if AIB can lend profitably at 3.3%, think of the profits they are gouging out of customers who are paying 4.8%!

No wonder they made €2 billion in profits last year.

I Googled "why are green mortgages cheaper?" and was brought back to Askaboutmoney


Time to Plan made a really good point :

If green mortgages are cheaper, that suggests that green mortgage rates are the ‘real price’. The better question perhaps is ‘why are non green mortgages dearer?’

Click to expand...

The Central Bank published a paper on the topic here.

Brendan Burgess said:

But if AIB can lend profitably at 3.3%, think of the profits they are gouging out of customers who are paying 4.8%!

No wonder they made €2 billion in profits last year.

Click to expand...

Is this really surprising? Isn't the company/board's primary responsibility to maximise returns for shareholders? Which still includes the government at about 20% I believe?

The Netherlands is a leader in Green Mortgages and the discount tends to be 0.1% for B ratings and 0.15% for A ratings

Discounts from mortgage lenders on sustainable homes​

Mortgage lenders aim to promote sustainable living by offering a discounted interest rate. The government seeks to promote energy-efficient homes and encourage landlords to improve energy performance at rental properties.

• ABN AMRO ( up to 0.15%)
• ING ( up to 0.15%)
• Rabobank (0.15%)
• Obvion (0.15%)
• ASN Bank ( 0.1%)
• Florius (0.1%)

Brendan Burgess said:

There is no justification at all for a discount for green rates.

Click to expand...

I'd suggest that there is.

A more efficient home is a lot cheaper to run: from start to finish of my renovations which brought me to a B2 BER rating, I'm saving €200 a month in heating and lighting costs. Which means I have an extra €200 cushion for paying the mortgage (and other expenses), making me a safer bet. Lower risk= lower interest rate. As it should be.

This risk reduction isn't otherwise accounted for by LTV, income etc.

Brendan Burgess said:

AIB knows that a lot of customers won't shop around

Click to expand...

The same is true of an awful lot of products and services. It's not like it's difficult to check what the best rates are, or that AIB or any lender tries to conceal them. If people spend their money carelessly that's their lookout- Fools and their money and all that.

BIG-notorious said:

The same is true of an awful lot of products and services.

Click to expand...

There's a lot more friction and cost involved in switching mortgage provider than switching, say, insurance or household utility/service provider.

ClubMan said:

There's a lot more friction and cost involved in switching mortgage provider than switching, say, insurance or household utility/service provider.

Click to expand...

Absolutely.

But there's zero friction between staying on the variable rate instead of going on the 5 year fixed.

Probably better to compare switching your mortgage with changing your car though. Generally speaking, the more convenient it is the more it'll cost you. Many people value convenience over cash, and that's their choice to make.

Of course, many people are just very bad at practical mathematics, and that's a damning indictment of the education system...

But even with less cost/time involved in switching (say car/house) insurance, consumers still look to the easy option of asking a provider to 'match' a premium quoted elsewhere rather than just moving to the cheaper policywith a competitor. Thus playing into the hands of the insurer who will keep trying it on by increasing the premium every year and they will have no desire to be 'competitve'. Most consumers are complicit in these shenanignas by insurers, and competition never improves. Bank interest rate margins are 2%/3% (?) on deposits but inertia is also at play so that market doesn't improve from a competition perspective. But consumers will still complain about the lack of competition.

BIG-notorious said:

I'd suggest that there is.

A more efficient home is a lot cheaper to run: from start to finish of my renovations which brought me to a B2 BER rating, I'm saving €200 a month in heating and lighting costs. Which means I have an extra €200 cushion for paying the mortgage (and other expenses), making me a safer bet. Lower risk= lower interest rate. As it should be.

This risk reduction isn't otherwise accounted for by LTV, income etc.

Click to expand...

I'd suggest as it's probably the wealthiest who can afford to have properties with the latest efficiencies. It's a means to attract that profile of customer. Which is perhaps the same thing but from a different perspective.

BIG-notorious said:

Lower risk= lower interest rate.

Click to expand...

I would also expect the 'greener' BER property to hold its value better than a worse rated property. This would also have an effect on the risk to the lender (although how often do they end up repossessing a home?).

The BER rating on its own is a poor judge of a properties efficiency. Not enough to change the value. Consider a B rated property in a lesser location over a prime location with a D rating. You'd have to have an extensive survey far beyond a BER to assess it. To much sub standard work going on in that sector.