Paying borrowers to take their mortgage business elsewhere – that’s the latest bizarre development in what has become the crazy world of Irish banking.
A decade ago Bank of Scotland (Ireland) shook up the cosy cartel operated by native banks. It offered customers dramatically cheaper rates including low-cost tracker mortgages, setting off a reckless battle for market share.
Now, as it prepares to withdraw from the crisis-stricken Irish banking market it is offering borrowers €1,150 to switch their home loans to other banks or building societies.
The move is seen as an attempt to offload loss-making tracker deals and pundits predict it will be followed by similar incentives from other lenders.
More than 400,000 home owners in Ireland are thought to have trackers, the interest on which can only rise when the European Central Bank rate does.
These lucky owners are currently the only ones in the country escaping higher mortgage charges, while banks are forced to pay a high price to borrow on wholesale money markets.
Bank of Scotland (Ireland) is reported to have been particularly badly hit as many of its mortgages are trackers.
Initially, when announcing its decision to quit the Irish market by the end of June it gave customers the option of staying on its books until their loans are paid off or moving. But a recent letter to borrowers includes a cash offer to encourage the switch.
The letter states: “If you wish to switch your mortgage to another provider we will contribute €1,000 towards your legal fees and €150 towards your valuation fee.”
But financial experts and consumer watchdogs in Ireland are urging tracker customers not to be tempted.
Paul Kinane, deputy president of the Irish Brokers Association, says: “Tracker deals are worth their weight in gold and brokers would never recommend leaving one unless the offer was exceptional or there were other critical financial factors involved.”
Meanwhile, the Consumers’ Association of Ireland has called for an investigation by the financial regulator to ensure home owners are not being pressurised into giving up trackers.