Dysfunctional Irish Mortgage Market: Cashback Deals Mislead Customers

Strategic Insights -

In the Irish mortgage market, lenders engage in dubious practices to attract customers, resulting in higher rates for many borrowers. The average rate for a new mortgage in Ireland is 2.72 per cent, significantly higher than the eurozone average of 1.27 per cent. This discrepancy translates to a substantial difference in the cost of borrowing, with an Irish borrower paying €4,500 extra per year or nearly €400 a month on a €300,000 mortgage. A key contributor to this disparity is the use of cashback deals, which are considered a sophisticated attempt to manipulate consumer behavior.

Key Takeaways:

  • Cashback deals in the Irish mortgage market may mislead customers, who often view them as a present rather than an added cost that will be repaid over time.
  • Existing customers in the Irish market do not benefit from rate cuts, as lenders typically only offer these discounts to new customers.
  • The average rate for a new mortgage in Ireland is 2.72 per cent, more than twice the eurozone average of 1.27 per cent.
  • An Irish borrower pays €4,500 extra per year or nearly €400 a month on a €300,000 mortgage due to high rates.
  • Bank of Ireland's business model relies on offering cashback to attract new customers, which results in higher rates for existing customers.
  • KBC Bank's business model, in contrast, does not use cashback to attract new customers, resulting in lower rates for all customers.
  • The Competition and Consumer Protection Commission (CCPC) has conducted a Phase 2 investigation of Bank of Ireland's proposed acquisition of KBC's mortgage book.
  • The CCPC can approve, veto, or approve the acquisition subject to conditions, including maintaining KBC's existing lending practices.
  • The CCPC should approve the acquisition with conditions that ensure the KBC operation retains its existing lending practices.

Statistics:

  • Average rate for a new mortgage in Ireland: 2.72 per cent
  • Eurozone average rate for new mortgages: 1.27 per cent
  • Difference in interest paid per year on a €300,000 mortgage in Ireland compared to the eurozone: €4,500
  • Monthly difference in interest paid on a €300,000 mortgage in Ireland compared to the eurozone: €400
  • Percentage of borrowers who cannot switch lenders due to having to restructure their mortgages or change their financial circumstances: 20 per cent
  • Potential interest paid difference per year for a KBC customer moved to Bank of Ireland's lending rate: €2,100

Sources:

  • Central Bank of Ireland
  • Competition and Consumer Protection Commission (CCPC)
  • Bank of Ireland
  • KBC Bank
  • askaboutmoney.com