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Economists say banks in Ireland are misleading mortgage customers

DUBLIN: Allegation that banks are misleading customers by offering mortgage offers including cashback. Economists point out that an Irish borrower will have to pay €68,000 more in interest over the lifetime of the loan.

Banks offering cashback benefits include Bank of Ireland, Permanent TSB and AIB-owned EBS. It is also noteworthy that two of the cashback mortgage providers are majority-owned by the State. The allegation is that they are the ones who are misleading the customers and taking loans.

In January, the mortgage rate in Europe was 1.29%, while the rate in Ireland was 3.35%. That means an Irish borrower who takes out a €250,000 mortgage and pays it back in 30 years will have to pay €190 more per month than borrowers who do not receive benefits. The borrower has to pay an additional interest of €68,000 over the entire term of the loan.

No point in Cashback incentives

Economist Michael Dowling argues that cashback incentives in mortgages is a form of dual pricing. He says this is because existing customers will not be able to avail such benefits.

It is noteworthy that last week one of these companies introduced a four-year fixed rate. But without the cashback incentive, its interest rate is up to 0.45%.

Another of the banks which offers cashback incentives also has a fixed interest rate that is 0.4% lower if the borrower does not take advantage of the cashback incentive. Therefore, the cost of cashback has been proven to be at least 0.4%.

Simply put, this means that banks that offer cashback benefits can lower interest rates overnight. With a mortgage of €250,000 over 30 years, a 0.4% reduction could reduce the monthly repayment by €52 and save €20,000 in interest over the lifetime of the loan.

All three mortgage lending banks promise to repay 2% of the mortgage amount to the borrower within 40 days of the completion of the mortgage agreement.

Bank of Ireland and EBS offer a 1% additional incentive for the fifth year if the borrower stays with the lender. He says the three banks that offer cashback benefits have common interest rates. A closer look at the mortgage market reveals that the cost of a cashback incentive ranges from 0.4% to 0.5%.

The three latest entrants to the market, Avant Money, ICS Mortgages, and Finance Ireland have cheaper variables and fixed rates. But Dowling says there are no cashback benefits and they compete on cost.

Central Bank

In 2019, Central Bank governor Gabriel Makhlouf pointed out in the Oireachtas committee that banks offering cashback mortgages should make their terms clear and transparent, as customers will receive nothing for free.

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