What does BOI’s return to broker market mean?

Bank will soon be back in business with brokers which could intensify competition and lead to new innovations

Bank of Ireland returning to the broker channel could intensify competition for borrowers and lead to lower rates - but this would be at the expense of cashback deals. Photograph: Brenda Fitzsimons / The Irish Times

Bank of Ireland returning to the broker channel could intensify competition for borrowers and lead to lower rates - but this would be at the expense of cashback deals. Photograph: Brenda Fitzsimons / The Irish Times

 

It’s been a long time in coming, but Bank of Ireland looks finally set to return to the broker market at some time this year. On Monday, the bank confirmed that it will join AIB, Ulster Bank and Permanent TSB by once again offering its mortgage products via mortgage intermediaries. The bank exited the broker channel back in 2013 under the terms of its state aid restructuring agreement with the European Commission, but this condition has since been lifted.

The bank is likely to pay brokers commission of about 1 per cent to sell its mortgages; Ulster Bank, for example, pays 1 per cent, while AIB increased the commission it pays brokers to 1 per cent in 2016 from 0.75 per cent for arranging mortgages via its Haven subsidiary.

But what will the return of BOI mean for the mortgage market and for home loan borrowers?

Cash back deals may diminish

Given its narrow channel of distribution, Bank of Ireland has sought to attract customers to its branches by offering the most attractive cash back deals on the market. At present for example, it offers 2 per cent of a new mortgage back as cash upfront, while if you stick with the bank for five years, you’ll get a further 1 per cent back. So, a mortgage of €275,000 for example, could result in a total cashback of €8,250. However, once its mortgages are available right across the broker channel, it may feel it has to offer less of an incentive to get customers to go for a BOI mortgage.

Bank will grow its share further

Despite not being offered by mortgage brokers, BOI has nonetheless managed to grow its market share. According to the bank’s results for 2017, it reported growth of 41 per cent in new mortgage lending, and increased its market share to 27 per cent. Its move into the broker market could see its share increase even further.

Move could mean new innovations

Bank of Ireland will likely seek to emulate its experience in the UK when it returns to the broker market. In the UK, it has significantly stepped up its engagement with the broker market in recent years, investing millions of pounds in technology, offering brokers an online application system, which means it takes just minutes to submit applications. More recently, it launched a range of new products including the First Start product, which allows a first-time buyer to combine their income with that of a “sponsor”, such as a parent, to qualify for a mortgage. Could we see something like that here?

Best deals likely to remain for fixed customers

In recent years, the bank has sought to “encourage” the bulk of its customers to opt for fixed mortgage rates. And it has achieved this with some success, with fixed rate products accounting for a staggering 89 per cent of new lending in 2017, up from just 30 per cent in 2014. As the bank says, this pricing strategy provides “ value, certainty and stability” to both the bank and its customers. And it’s unlikely to change this approach that it’s back in busienss with brokers.

Of course there’s an obvious reason why borrowers are opting for fixed rates; the bank still has one of the most stubbornly high variable rates in the market, at 4.2 per cent, while a customer opting for a two year fixed product can lock into a rate of as low as 3 per cent.