Should new LTV rates always be offered to existing customers?

[gnf_ireland]

Over a coffee chat recently, the topic of risk around mortgages came up. The general agreement was the lower the LTV, the less risky the mortgage and therefore theoritically the cheaper the mortgage should be.

However this got me thinking? If we all agree that existing customers should always have their interest rate dropped in accordance with reductions in their LTV, are the banks therefore entitled to charge considerably more for higher LTV's, since they are higher risk?

The current 'weighting' for the higher LTV is marginal in reality
AIB - 0.2% (3.55% [80%] v 3.35% [50%])
Ulster - 0.2% (3.7% [80%] v 3.5% [60%])
PTSB - 0.3% (4% [80%] v 3.7% [50%])
KBC - 0.2% (3.45% [80%] v 3.25% [50%])
BOI - 0.3% (4.2% [80%] v 3.9% [60%])

Would people in general support a higher weighting factor on higher LTV's, in order to avail of lower rates as they pay off more of their mortgage, or should the band you enter at the time the mortgage approval is granted apply for the life of your mortgage, given you can always switch provider once your LTV improves ? Should the bank also be allowed to 'assign' a new LTV if the 'market index' drops below a given percentage?

Personally, I think your rate should be based on the band you entered when the mortgage approval was granted, but all changes within that band should automatically be made available to you. However if you end up with a lower LTV, this should not automatically apply. It may encourage more people to switch provider, which in itself should increase competition and keep all providers 'a little more honest'

Any thoughts here? Which option would you choose? I have no idea how to put a poll on this, but would if I could ! It might be also good to confirm if you are a high/average/low LTV as part of any reply (for context)


I am a low LTV customer for the record

 

[cremeegg]

I am a much higher LTV customer now than I was in 2007 when my house was worth twice what it is worth today.

Would the revision in bands work both ways, i.e. would you go into a higher LTV band if the value of your house fell.

(Sorry if I seem to be picking at all your ideas, it's just because you are making such thought provoking suggestions)

 

[gnf_ireland]

@cremeegg Firstly dont worry about sounding picky - if these were easy to resolve I would have assumed others would have come up with the magic solution before now

I think this is part of the challenge - if the customer automatically benefits from lower LTV, should the customer also be penalised by higher LTV's? I think in the interests of fairness yes, although maybe this should be capped in some way

This is one of the reasons I personally believe whatever you signed up for in the Mortgage Agreement should stand - so if it was a 71% LTV, that's it until you switch providers. That was the risk factor that all parties signed up to at the time, and an agreement is an agreement. So if you have a <80% LTV product, you should continue to avail of the prevailing rate for the lifetime of your mortgage agreement with the bank, even if your LTV changes to 85% during the life of the mortgage.


If a new LTV option of <75% comes out, this is a greyer area. Personally, I think you should be entitled to it if (a) you would have originally qualified for it if it was available and (b) you still qualify for it. If your LTV is now 85%, should you be able to avail of this new product at <75% - personally I believe no, but that's my opinion

The reason I think that rule needs to be in place is banks will probably just bring out new mortgage products to avoid the rules, so a LTV of <79.99 or <80.01 etc just to artificially make them different products ! This rule would avoid this from happening