Permanent TSB has launched a new low rate mortgage to attract customers looking for an alternative option for a repayment on withdrawal.
However, the product is only available to new customers of the bank, in a move that can interfere with existing customers as it is a form of dual pricing.
The bank’s new 2.25 percent rate, set for four years, is available to all new home loan customers, including new buyers, those moving and those looking to switch mortgage lenders. It is not available to customers buying to rent.
The lower rate is available for those with a loan-to-value rate of less than 80 percent, with a higher rate of 2.55 percent available for those with a mortgage between 80 and 90 percent of the home purchase price. The product launch marks a small change of course from the shore. Previously, it used cash back offers to encourage new buyers and switchers. But now it wants to compete on rates, although customers will also be able to take advantage of the bank’s cashback offer.
This returns 2 percent of the value of the mortgage upon withdrawal, but a borrower who takes advantage of this incentive will not qualify for the lower rate. Instead, they can choose from options such as a 2.5 percent three-year fixed product.
Customers who opt for the lower rate can also enjoy the 2 percent refund on the value of their monthly mortgage payments if they have a checking account with the bank.
Cash back offers have been criticized by the League and Consumer Protection Commission as they provide poor value to borrowers as the rates associated with such products mean that homeowners end up paying more for their mortgage. As such, the bank’s move to compete on rates, rather than a cash back offer, will be welcomed.
His decision to offer the product only to new customers, however, could well run into problems with existing borrowers. According to the bank, rates for existing customers start at 2.95 percent, which is a significant difference from the new rate of 2.25 percent. While some of these customers may have benefited from cashbacks in the past, the same cannot be said for older customers.
While insurance companies are the subject of Government and Central bank due to the practice of dual pricing, where different customers are charged different prices for the same product, the emphasis is not on banks. This is despite the practice of only offering cashbacks – or now lower rates – to new customers.
Laura Temple, head of loan products at the bank, said the introduction of the new option is to “broaden customer choice.”
“Our cash back mortgage offering is hugely popular with customers, but there are those who prefer a lower rate, not a cash back option, and this product was designed with them in mind,” she said.