Despite the widespread cutting of interest rates, many existing borrowers are finding the great deals advertised in their lenders' windows are not available to them.
Many of the major lenders, including National Irish Bank, Irish Permanent and First Active, as well as TSB, charge their existing customers substantially more for their loan than new customers - even over periods as long as five or 10 years.
On the other hand, EBS, ACC and AIB customers and Bank of Ireland customers can be now guaranteed they will do as well as new customers for any of the longer loans. Traditionally, lenders have justified the cheaper loans to new borrowers saying existing customers also had the benefit of cheap rates when they first took out a loan.
However, there are very few if any existing customers who did better in their time for extended periods. EBS, for example, offers a discount in the first year to new borrowers, which can be very helpful at a time many borrowers, particularly young couples, find the most expensive. But for any period over one year, all customers get the same deal. This was also the case when many of the existing customers first took out their own loan. Bank of Ireland has now followed EBS, along with AIB.
But other lenders charge their existing customer base significantly more. Many rely on simple inertia where customers cannot face the hassle and indeed expense of going to a new lender, But the result is thought provoking.
Before its recent move, Bank of Ireland for example charged almost one full percentage point more on two-year loans to existing customers. But First Active still charges existing customers 0.33 of a point more for two-year money and a huge 1.2 percentage points for five-year money. New customers can get the first year of a fiveyear fix at 5.2 per cent, while existing First Active customers are charged 6.4 per cent.
TSB charges 5.4 per cent for a three-year fix for new customers and 5.95 for the same deal for existing customers. National Irish charges a full one percentage point more to its existing customers for loans running to January 2004 at a hefty 6.8 per cent.
Irish Permanent has a smaller difference but still charges existing customers more than new ones across the full range of its loans.
However, Barbara Patten, head of marketing at Irish Permanent, insists all lenders have to cut margins to the quick to attract new business. And existing customers will have already benefited from whatever discount was in place when they took out their loan.
Although, she admits it may not have had an effective 10-year discount which Irish Permanent's customers could now effectively pick up on. "We have no customers going for loans over that sort of timescale" she says. She also says the bank's two-year deal is still one of the best on the market. Irish Permanent's two-year for existing customers is set at 5.75 per cent, compared with 5.3 per cent at EBS, 5.6 per cent at Bank of Ireland and the same 5.75 per cent at AIB.
Of course, the actual rate as well as the lender's attitude to existing customers is important. Jim Power, chief economist at Bank of Ireland, says any fixed rate below 5.5 per cent represents very good value for the peace of mind it offers. He says variable rates will easily fall below 5.5 per cent and could well fall as low as 5 per cent,
"The Central Bank will cut interbank rates to about 3.3 per cent. That should deliver a variable of around 5.3 per cent but competition will almost certainly bring that lower," he says.
But it is possible rates could go even lower. Mr Power points out that over the past few weeks confidence in European economies has been dwindling somewhat and EU rates may be cut even lower next year. That will mean even lower rates for Ireland after we join the single currency.
But he also warns one-year fixed rates may not offer the best deal, Although lenders say these are still the most popular loans on the market at the moment.
He says variable rates will be as low as the one-year fixed rates within the next couple of months. However, it is longer term fixed rates which may not have reached the bottom of their cycle, he warns.
"The problem is that long-term interest rates have spiked up over the past couple of weeks as investors have started liquidating their positions to pour money back into the equity markets," he says. This means that fixed rates from three to 10 years are now as low as they are going to get and soon may even to start to move back up.
