How to motivate borrowers to switch to a lower rate with their existing bank?

[Brendan Burgess]

Let's say I have a KBC mortgage and an AIB current account.

All I have to do is open a KBC current account and mandate my salary to be paid into that account. The €400 savings start immediately.

I presume that KBC does not make it a condition that one has no other current account?

At my leisure, I can start switching direct debits and standing orders to the KBC account.

Brendan

 

[Brendan Burgess]

I am wondering if it would be possible to encourage some media students

An interesting idea. Not sure about media students though. Could it be a project for a marketing class? How to get people to switch products? They might do it in conjunction with the media students as the video would be part of the strategy.

Brendan

 

[Brendan Burgess]

Charlie Weston has a piece in today's paper as one of 10 ways to beat the budget

http://www.independent.ie/business/budget/charlie-westons-top-tips-to-beat-the-budget-36226072.html

2) Get a better mortgage rate


Thousands of mortgage holders are overpaying because they are failing to apply for lower rates with their own bank.

In some cases, lower interest rates on home loans are available by simply filling out a form. Customers of Permanent TSB, KBC and Bank of Ireland could all avail of lower rates, but are not asking for them. Some 125,000 variable-rate customers in the three banks are affected. Many lenders have lower fixed rates than their variables.

Banks also have LTV (loan-to-value) rates. This is a rate based on the equity in the home. The more equity you have the lower the rate you pay. You apply to the bank for these rates.

 

[Monbretia]

Apart from all the other bits of the discussion I think quite a lot of people don't know what 'equity' or 'loan to value' mean, you'd nearly want an education piece something like the 'I don't know what a tracker mortgage is'.

 

[Brendan Burgess]

How about an online calculator?

Roughly what is your house worth?
Enter your bank's name:
What is the balance on your mortgage?
What interest rate are you on?
What is the remaining term?

...Whirring noises...

Your repayments are €2,300 per month based on the above information
If you fix for two years at 3%, your repayments will be reduced to €2,100 per month

Over the life of the mortgage you will save €20,000 in repayments.

To fix your mortgage, you need to call BoI on 123466

 

[gnf_ireland]

All I have to do is open a KBC current account and mandate my salary to be paid into that account. The €400 savings start immediately.
I presume that KBC does not make it a condition that one has no other current account?
At my leisure, I can start switching direct debits and standing orders to the KBC account.

Yes, you are correct in that KBC does not force you to close other bank accounts to avail of the discount.
However, they do mandate your salary be paid into it, and for self employed at least the mortgage amount must be paid in.
This creates a cash flow issue for some people, if they are bouncing funds to KBC and back to their normal bank account...

People clearly feel this is hassle - or have some other reason not to do it.
I thought there was a statistic that more people will divorce than change their bank - or maybe that was the UK !

 

[capslock]

Personally I would take it
Scenario A - you cannot switch for 2-3 years because you need to get from negative equity to around 80% before you can switch
Scenario B - you get to 80% LTV, chances are the break free will be zero or minimal anyway

We certainly won't be in a position to switch for the foreseeable future. We've a split mortage and are saving separately monthly to eventually pay down the warehoused element while it's sitting as an interest free loan.

What made your friend go for it in the end? Was it your experience?

Brendan

No, but she has said that if she knew I had taken it last year she would have gone for it sooner. PTSB wrote to them again about it. Incidentally she only needs to have a drive-by valuation carried out whereas we had a full inspection last year so perhaps the bank are trying to make it easier/more enticing for people to change?

 

[renter45]

How about an online calculator?

Roughly what is your house worth?
Enter your bank's name:
What is the balance on your mortgage?
What interest rate are you on?
What is the remaining term?

...Whirring noises...

Your repayments are €2,300 per month based on the above information
If you fix for two years at 3%, your repayments will be reduced to €2,100 per month

Over the life of the mortgage you will save €20,000 in repayments.

To fix your mortgage, you need to call BoI on 123466

Bonkers.ie have this already

 

[RichInSpirit]

Switching to "lower rates" is what landed all the tracker mortgage switching people in trouble in the first place.
Just an observation.

 

[Berneseduke]

In fairness I think those people reading this thread are clued in already on how to reduce payments or where the best deal is. So our suggestions might not be the best. you really have to approach people that haven't changed and ask them why not? (not those that cant change because of negative equity etc) Ask them what would persuade them to change... PTSB has written to their customers as quoted above 3 times, its up to their customers to take the lead and do the necessary work? Is it just that they are lazy? Maybe they are scared of the big bad bank?

Its the same with utility bills, a lot of people wont change provider.. even tho bonkers.ie and other such sites make it very easy... there is plenty of money to be saved on bills out there... but people are too lazy to switch or keep saying I'll do it later...

PTSB had a massive campaign years ago for switching to a no fees account and stressed that there is little work with bank staff on hand to help.. very few of my friends switched... yet they complained when 30 euro was taken out of their account every quarter by their current bank.

The article in the paper mentioned above.. very few people in their early 30s and younger even buy a paper anymore or subscribe to a newspaper on-line.. therefore they miss out on info like this. They are too caught up in 120 word articles on facebook etc and twitter feeds. I know that is a sweeping generalization, but its what I experience.

The information is out there, its up to individuals to go out and research it... as the saying goes you can bring a horse to water but you cant make him drink it...

If you want to educate its those people you have to ask why dont they switch... and build a marketing campaign around that.

 

[gnf_ireland]

Switching to "lower rates" is what landed all the tracker mortgage switching people in trouble in the first place.

Yes agreed (to a degree). There are other aspects to this as well
1. Neither customers or banks realised the true value of the low cost trackers at the time, otherwise customers would never have given them up and banks would never have offered them
2. The ECB has maintained a historic low for a long time, in particular since 2013. Back when the majority of these scandals occurred, the ECB rate was 4%+ so was not as attractive. No one at the time could have forecast the ECB reduce to below 1% for the duration they have
3. The interpretation by the banks of the wording of the mortgage contracts, and the lack of a proper consumer protection group (FSO & Central Bank have been asleep at the wheel here for too long), meant the banks got away with it. The banks have cleared abused there powers here, and our institutions are not strong enough in dealing with them.
4. The other elephant in the room here is the fact that these customers were moved to excessive SVR rates to help return the banks to profitability. If the customers had been charged the european average 1.8% variable rate rather than the 4.5%+ most were moved to, the issue would not have been as material. The fact is there were hit three times - firstly to pay the cost to bail out the banks, secondly the trackers were not offered back and thirdly put on an excessive SVR rate.

But I agree with the sentiment - people fear the banks power, and their current attitude towards the institutions such as the Central Bank and Finance Committee means there is a strong distrust towards them. They believe the banks are not going to do anything to favour the customer without a catch, and therefore suspicious of why they are offering a better rate to them.

Without being able to address this issue, and explain it to the average joe soap, there will be limited movement in this area sadly. The tracker scandal has the downside of making people mistrust banks even more.

 

[RedOnion]

I've been having a look at what options are available for customers switching within their current lenders.

For this version, I've taken the case of a customer with >90% LTV (including negative equity), currently on banks SVR.

Assuming 200k remaining balance with 20 year remaining term. TRS ignored.

Let me know if you spot any errors / omissions in options and I will update.

Bank	SVR	Current Repay	>90% LTV, including Negative Equity	Rate	Repayment	Saving per month	Saving over term
KBC	4.25%	1,238	Open Current account, 0.2% Discount	4.05%	1,217	21	5,040
-	-	-	Fix for 2 Years, with current account	3.70%	1,181	57	13,680
Ulster Bank	4.30%	1,244	No options?	-	-	-	-
BOI	4.50%	1,265	Fix. 1, 2, 3, 5 year at 3%	3%	1,109	156	37,440
-	-	-	No LTV criteria since last rate change	-	-	-	-
EBS	3.70%	1,181	Fix. 1, 2, 3 year at 3.15%	3.15%	1,124	57	13,680
-	-	-	No LTV criteria since last rate change	-	-	-	-
PTSB	4.50%	1,265	Managed variable Rate > 90% LTV	4.30%	1,244	21	5,040
-	-	-	2, 3 year fix	4.20%	1,233	32	7,680

 

[RedOnion]

And similar options for a borrower with 80 - 90% LTV, but can't switch to another lender.
Same assumptions as above.

Bank	SVR	Current Repay	80 - 90% LTV, but can't switch lender	Rate	Repayment	Saving per month	Saving over term
KBC	4.25%	1,238	Open Current account, 0.2% Discount	3.50%	1,160	78	18,720
-	-	-	Fix for 1 Year, with current account	2.90%	1,099	139	33,360
-	-	-	Fix for 2 Years, with current account	3.20%	1,129	109	26,160
Ulster Bank	4.30%	1,244	Loyalty rates. Open Current account	3.70%	1,181	63	15,120
-	-	-	Fix, 3 years. With current account	3.20%	1,129	115	27,600
-	-	-	Fix, 4 years. Assuming eligible	2.99%	1,108	136	32,640
BOI	4.50%	1,265	Fix. 1, 2, 3, 5 year at 3%	3%	1,109	156	37,440
EBS	3.70%	1,181	Fix. 1, 2, 3 year at 3.15%	3.15%	1,124	57	13,680
PTSB	4.50%	1,265	Managed variable Rate 80 - 90% LTV	4.20%	1,233	32	7,680
-	-	-	2, 3 year fix	4.20%	1,233	32	7,680

 

[housebound]

The average non financial based person out there today with a mortgage lives "month to month" and that's why its important at least initially anyway, for it to be easy to see/calculate how much a person will save on their mortgage repayments per month if they switch to a lower rate. The reason that is important is because that is the amount of money that they will have extra in their pocket each month right now....granted its an eye opener to see the overall interest saved over the term of the mortgage but effectively people don't react to that as its not like you are handed that amount at the end so it feels meaningless somehow.

To investors that long term saving would be important but to homeowners its the savings per month that are important.

Also for most people out there with mortgages there's the daily grind/juggle/groundhog day to contend with so unless the monthly saving seems particularly tempting then most people wont be bothered to make the time do the paperwork....the mortgage is taken out in a lump sum usually at a time close to when the person has been paid their salary so it really probably doesn't matter to a lot of people at that point if for example 1200 or 1220 is taken as they are ballpark the same in the grand scheme of things to most on that basis. Once the mortgage is gone out its gone out and people then work with what they have left in their account for the rest of the month.

people spend money on coffee nowadays not newspapers....maybe sell it to them in terms of how many cups of coffee per month they are saving