Karl Deeter: deliberate

Customers of Bank of Scotland (BoS) and Halifax in the UK are being offered much lower variable standard rate than the 5.9% available in Ireland as a lack of market competition begins to bite.

The bank's Irish arm was the subject of controversy last week when it emerged that customers applying for fixed-rate mortgages are being advised that they could face a 6% interest rate when they move to variable.

BoS customers in the UK are currently offered a variable rate of 4.85% while sister bank Halifax's rate is 3.5% compared to its Irish rate of 4.15%.

The European Central Bank's base rate is only half a per cent ahead of the UK's at 1%. Ulster Bank and First Active variable rates are also high compared to their Irish competitors.

A spokesman for BoS told the Sunday Tribune that the rate was a result of the in­creased cost of funding new business and that customers are fully informed when making applications.

However, brokers say that the high rate is a deliberate attempt by Bank of Scotland (Ireland) to price themselves out of the market.

"They are just interested in managing their back book. Saying that you are open for business when you are charging twice as much as your competitors is like saying you are in the business of selling Mars bars but charging €5 for them," said Karl Deeter of Irish Mortgage Brokers.

BoS's admission that it has accepted just two new fixed-rate customers since July indicates that it is no longer an active player in the market.

"BoS is ahead by quite a margin – the average rate is about 3%. What they are really saying is don't apply to us," said Frank Conway of the Irish Mortgage Corporation.

The situation here is markedly different from the UK where analysts are predicting tightening margins on mortgages as competition increases.

In a recent sector update, pan-European banker UniCredit suggested that rates falling to 1.25% over the base rate in the UK would be sustainable.

"A mortgage could still generate a 16% return on equity. That leaves plenty of scope for prices to fall before we could say that lenders are acting irrationally. In fact, if lenders think that they could cross sell other, more profitable products from mortgages, then, they may be willing to push prices down even further," it said.