Mortgage wars: banks battle for mortgage customers as property upturn takes hold

Lenders are cutting rates, offering sweeteners to brokers to funnel business to them, and giving borrowers incentives such as paying for home valuations in a bid to win a bigger slice of the lucrative mortgage market.

The stepping up of mortgage lending is prompted by demand from new buyers and some of the higest profit margins for home loans in Europe.

AIB, KBC, Ulster Bank and Bank of Ireland have introduced cut-price fixed rates in the first sign that mortgage lending is beginning to creep back to normality.

Ulster Bank is set to introduce a new lower fixed rate at the end of next month. The new rate will be 4.25pc, fixed for three years.

The bank is also offering to pay for a property valuation – worth around €130 – it said.

A spokesman for Ulster Bank said it has seen a 44pc rise in the value of mortgages drawn down in the first six months of this year compared with the same period last year.

But Ulster Bank denied reports it is keen to go back to paying commissions to brokers. 

AIB is attempting to generate greater mortgage lending by promising to pay more commission to brokers who arrange home loans through its Haven subsidiary.

The bank was paying 0.75pc of the value of mortgages arranged by brokers and issued by Haven. It is now paying 1pc to brokers, in a bid generate more lending.

AIB, and its Haven unit, has a new three-year fixed rate of 4.2pc.

KBC Bank has just brought out a new one-year fixed rate aimed at first-time buyers. The 3.5pc rate is 1pc lower than the average variable rate in the market.

The bank is offering to cut this lending rate, and others, by 0.2pc for those who set up a current account with it.

The renewed appetite for lending comes as the National Asset Management Agency (NAMA) said it is attempting to deal with the chronic shortage of houses for sale.

KBC is also paying €1,000 for existing borrowers who switch to them, and offering one year’s free home insurance to all new mortgage customers.

This week it put in place a “quick approvals” process for borrowers.

Bank of Ireland has extended until the end of the year its offer to pay the stamp duty for new buyers. It will refund first-time buyers’ stamp duty to the value of 1pc of their mortgage.

The bank also launched a new 10-year fixed rate at 4.99pc, claiming it is the best value long-term fixed rate in the market.

Experts said this was good value as those choosing a fixed rate for more than five years can borrow more, as the bank does not need to “stress test” them to see if they can cope with higher rates.

The push by banks to secure new customers comes as the National Asset Management Agency (NAMA) said is attempting to deal with the chronic shortage of supply.

It has put funding in place for the development of 4,500 new housing units in Dublin, which it hopes will be completed by the end of 2016.

Around 2,000 of those units are already being built.

This newspaper uncovered last month that mortgage rates here for new borrowers and existing homeowners on variable rates are among the highest in the eurozone.

The average variable rate here is 4.5pc.

It has been estimated by consumer advocate Brendan Burgess that banks are charging so much that they are making €1bn a year in super-profits on home loans.

Rates here are around 0.5pc higher than in the 17 other countries that use the euro.

This means a homeowner here with a €200,000 mortgage will pay almost €4,000 a year more in interest than in other eurozone countries, Mr Burgess said.

This has prompted a scramble by banks here to ramp up their mortgage lending.

Mortgage expert Karl Deeter said that the fact that banks have introduced fixed rates that were lower than the average variable rate was a sign banks were trying to attract business.

“The credit market for mortgages is starting to come alive,” he said.

“All of the recent changes added together indicate that banks are hungry for lending because there are huge profit margins on mortgages and it is a way to make big bucks.”

Economist at Goodbody Stockbrokers Juliet Tennent said she expects around €3.8bn to be lent out for mortgages by banks this year, up about 50pc from last year.

During the boom in 2006 some €40bn was loaned out for residential property, she said.

Experts said a normal market would see lending of €10bn a year.

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