Consumer watchdog puts focus on hidden costs of cashback mortgages

Competition and Consumer Protection Commission addresses deals that cost first-time buyers large sums of money over the lifetime of their loans

source; The Irish Examiner – EAMON QUINN

The State’s competition watchdog has discussed in great detail the potential hidden costs for consumers taking out cashback mortgages, as it mulled whether to give the go-ahead to Bank of Ireland to secure €9bn of the mortgage loan books from KBC Bank Ireland. The full report by the Competition and Consumer Protection Commission was published yesterday.

The watchdog had allowed Bank of Ireland to secure the €9bn in loanbooks from KBC, with limited conditions designed to ensure KBC customers would keep their favourable mortgage rates. The May ruling was one of a trio of approvals that the watchdog had handed down that involve the plans of KBC Bank and Ulster Bank to shut their doors for good in Ireland and for their loans to be carved out between the already dominant banks, Bank of Ireland, AIB, and Permanent TSB.

The full commission report is significant because it addresses in exacting detail the concerns long voiced by mortgage brokers and consumer advocates about the way cashback mortgages are offered by banks in Ireland that in almost all cases end up costing first-time buyers large amounts of money over the lifetime of their loans.

Bank of Ireland and Permanent TSB, which is involved in the deal-making over the respective KBC and Ulster Bank loan books, is prominent in offering the controversial cashback mortgage loans. The report by the watchdog makes no ruling on cashback loans, but finds that “customers who avail of cashback tend to pay more over the lifetime of the mortgage, yet it remains a very popular choice among consumers”.

For the first time, the report brings together the research that the watchdog, the Central Bank, and the Economic and Social Research Institute conducted over the past five years on the challenges consumers face in assessing the true price of their mortgage loans. Cashbacks make decision-making more difficult for first-time buyers.

On cashbacks, the report says that Bank of Ireland was the first to offer the loans in 2015, with a 2% incentive.

“PTSB and EBS introduced similar offers in 2016. Since then, Bank of Ireland has introduced its 1% additional offer at the end of the fixed-term offer, EBS has increased its offer to a flat 3% at drawdown, and PTSB has introduced its 2% cashback on repayments to first-time buyers,” according to the report.

The assessment finds cashbacks although not automatically “worse value than non-cashback mortgages” nonetheless “appear to offer significantly poorer value for money over the lifetime of the mortgage”.

Cashbacks in many cases offered by Bank of Ireland, PTSB, and EBS, “respectively are the most expensive over the total lifetime of the mortgage”, while, in specific circumstances, cashbacks from “Dilosk is the most expensive over the total lifetime”, the report says. 

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