Comparing BoI mortgage rates in the Republic and Northern Ireland

Brendan Burgess

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When Richie Boucher appeared before the Oireachtas Finance Committee on Wednesday, he said that comparing Irish mortgage rates with the Eurozone was misleading. It would be fairer to compare them with mortgage rates in Northern Ireland where the Standard Variable Rates were similar. You can see the interaction with Michael McGrath here.

OK, so let's do as Richie suggests and compare the mortgage markets in the North and the South as Bank of Ireland operates in both markets

|The Republic|Northern Ireland
Central Bank rate|.05%|0.5%
BoI SVR|4.5% |4.5%
Number of competitors for BoI|4|24
Lowest rate available from BoI|4%|1.98%
[FONT=&quot]BoI rates table Republic

The lowest rate available from Bank of Ireland in the Republic is 4% for a 1 year fixed with an LTV < 75%
[/FONT]

[broken link removed]

The lowest rate available in the North is 1.98% for 2 years fixed with an LTV of <60%. They charge a £799 arrangement fee for this rate to some customers. If you are borrowing £200,000, a £799 fee is the equivalent of 0.2% extra onto the rate.

At first glance, the mortgage rates in the North seem comparable to those in the Republic. Published standard variable rates are indeed similar. The mortgage rates for high loan to value mortgages e.g. 90% LTV, are very similar to those in the Republic c. 4.5%. But the lenders charge much lower rates for low LTV mortgages. In the Republic, the discount for lower LTV mortgages is tiny.

The Northern Ireland market is a highly competitive market, with banks actively chasing each others' customers to switch for a better deal. In particular the lenders chase the low LTV business and offer a good discount. After a few years, the combination of capital repayments and any increase in the value of the property puts the borrower into a lower LTV category and so they pay a lot less.

This ad on their website shows just how competitive the market in Northern Ireland is and how Bank of Ireland tries to win new customers from the existing customers of other banks

For a better deal
With our Easy Switch mortgages we pay the Standard Valuation and remortgage legal fees (when you use our nominated solicitors), there’s no Higher Lending Charge to pay and we won’t charge you an arrangement fee.
The initial discounts and arrangement fees confuse the picture a little bit, so what rates do lenders charge without these complications?

[broken link removed] is a good example of a lender which offers good long term value and tries to retain its customers. All these rates are tracker rates for the full term of the mortgage

Max LTV 90% |4.29% (Base rate + 3.79%)
Max LTV 85%|3.69% (Base rate + 3.19%)
Max LTV 75%|2.19% (Base rate + 1.69%)


It is extraordinary to think that a customer in Northern Ireland with an LTV of less than 75% can get a cheap tracker for the life of the mortgage.

And don't forget that most borrowers have an LTV of less than 75%. They start out with an LTV of 80% or 90%, but with house price increases and capital repayments, they can be in the <75% category within 5 years.
 
Other points raised by Richie Boucher

"Our group net interest margin is only 2.08%"
"We issue covered debt at 2% to 3%"
"We have long term liquidity risk"
So what? All these arguments also apply to Northern Ireland, where you can still offer mortgages at 1.98%.

"Our loss experience in the UK mortgage book is different"
Only for the high LTV mortgages. You face no losses on low LTV mortgages in the Republic.

"the average rate for new customers in Northern Ireland is between 3.99% and 4%"
So what? If the circumstances in the North are the same as the South, which you said they were, then why not offer the deals you are offering in the North to customers in the Republic?

"You are comparing fixed rates in Northern Ireland. We try to encourage customers to fix their rate (in the Republic) where we offer attractive fixed rates"
No you don't. The lowest fixed rate is 4%. You charge 4.99% for 10 year fixed rates. These are attractive to you, but not to the borrower.

"We look at what our competitors do, but we don't slavishly follow the other banks"
Yes, you do, but only in Northern Ireland. If you did not offer competitive rates there, you would get no business.
 
Brendan.
Congratulations on taking time to demolish the hard -nosed waffle that emanates from BOI via Mr Boucher.
From BOI the old adage holds true {tell a lie for long enough and it looks like the truth} I do (admire?) Mr Bouchers neck, and in fairness he is paid to look ONLY after BOIs interests.
As a society we do not even own BOI ,so will not even benefit from their assured profitability if they keep these rates up.

Customers do not feel they are in a position to move.
I think that will change in 2015 as the mood music on Ire is good enough to attract more Banks.
When more reasonable rates come in from competitors people should move.
For now, maybe they and their friends should move their other accounts to a state owned Bank eg AIB? We own AIB and just maybe we will get a dividend?

C
 
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