The recent move by KBC Bank to reduce its variable rate for new home buyers and switches is in stark contract to recent rises imposed by other lenders. The bank says it will save new buyers and mortgage switchers €322 a year over the life of the mortgage.
Finance experts said the development will ramp up pressure on AIB and Bank of Ireland. The two banks have about 1.2m current account customers each, and are issuing most new mortgages.
But the big two have been pushing up charges and fees for current accounts, and have been leading the charge in variable mortgage rate hikes.
And from next month an extra 50,000 Ulster Bank customers are set to be hit by fees after the bank changed its current account rules.
The KBC Bank move will be a shot in the arm for banking competition – which has suffered with the closure of a raft of retail banks, most recently Danske and ACC Bank which have shut retail operations here.
The new deal will see new mortgage customers and switchers who open a KBC current account get 0.2pc knocked off their mortgage rate for the life of the loan. They will have to get their salary paid into the account.
KBC Bank’s executive director Dara Deering (pictured)said the rate cut, as part of the bundled deal, would mean the lender would have the lowest variable rate for those with a 10pc deposit. It will take the bank’s variable rate for those with a 10pc deposit to 4.27pc, just below the EBS rate.
It will save a buyer €322 a year, based on a €250,000 mortgage over 20 years.
KBC Bank, which is opening six branches or hubs this year, began offering credit cards and personal loans earlier this year. It only launched its current account last year.
Financial experts said its current account was better value than those offered by AIB and Bank of Ireland. There is a quarterly charge of €6, but transaction charges can be avoided if €2,000 in credit is kept in the account.
In a clear sign that the Belgian-owned bank is making a competitive play in this market, it is also offering new mortgage borrowers one year’s free home insurance. This is estimated to be worth €350.
Existing mortgage holders who are not in negative equity and switch to it are offered free home insurance plus €1,000 to cover the cost of legal fees. This sort of offer has not been seen since the property boom.
The bank has also been attempting to build up its customer base by offering a higher regular savings rate of 4.5pc, which it says is the highest in the market.
The bank was recruiting 9,000 new customers every quarter, Ms Deering said.
The KBC move comes as Bank of Ireland is slashing the interest it pays to savers.
The country’s largest bank is telling customers that it is cutting about 0.2 percentage points off interest rates paid to regular savers.
Those using the bank’s regular dual-saver account will now earn a tiny interest rate of just 0.03pc. The interest is also taxed by the Government.
Savers with up to €1m and a 30-day notice period will only earn a rate of 0.85pc. Customers who are unhappy with the rates can close their accounts free of charge.
ICS Building Society is also cutting the interest it pays to savers.
The decision to cut both the cost of borrowing and lending are related as the European Central Bank has cut interest rates to historic lows. Some banks must now even pay the ECB to keep money on deposit.