Permanent TSB has launched a new low-mortgage rate aimed at attracting customers looking for an alternative option to a cash-back on drawdown.
However, the product is only available to new customers of the bank, in a move which may rankle with existing customers as it is a form of dual pricing.
The bank’s new 2.25 per cent rate, fixed for four years, is available for all new home-loan customers including first time buyers, people moving home, and customers seeking to switch mortgage provider. It is not available for buy-to-let customers.
The lower rate is available to those with a loan-to-value rate of less than 80 per cent, with a higher rate, of 2.55 per cent available to those whose mortgages are worth between 80 and 90 per cent of the purchase price of the home. The product launch marks a slight change in tack from the bank. Previously, it used cash-back offers to incentivise new buyers and switchers. But now it is looking to compete on rates, although customers will also be able to avail of the bank’s cash-back offer.
This gives 2 per cent back on the value of the mortgage at draw-down, but a borrower availing of this incentive won’t be eligible for the lower rate. Instead they can choose from options such as a three-year fixed product at 2.5 per cent.
Customers who opt for the lower rate can also avail of the 2 per cent back on the value of their monthly mortgage payments should they hold a current account with the bank.
Cash-back offers have been criticised by the Competition and Consumer Protection Commission as offering poor value for borrowers, as the rates associated with such products mean that homeowners end up paying more for their mortgage. As such, the move by the bank to compete on rates, rather than a cash-back offer, will be welcomed.
However, its decision to offer the product to new customers only may well rankle with existing borrowers. According to the bank, rates for existing customers start at 2.95 per cent, which is a significant differential on the new 2.25 per cent rate. While some of these customers may have benefited from cash-backs in the past, the same cannot be said of older customers.
While insurance companies are the subject of Government and Central Bank scrutiny due to the practice of dual pricing, whereby different customers are charged different prices for the same product, there has been no such emphasis on banks. This is despite the practice of offering cash-backs – or now lower rates – to new customers only.
Laura Temple, head of lending products with the bank, said the introduction of the new option is to "broaden the choice available for customers".
“Our cash-back mortgage offering is extremely popular with customers, but there are some who would prefer to choose a lower rate no cash-back option and this product is designed with them in mind,” she said.