Exit of Ulster Bank and KBC 'already chilling competition as mortgage customers turn away'

The remaining big three banks, which offer costlier mortgage rates, are already increasing their grip on the market, mortgage brokers warn

Mortgage brokers warn of further concentration in mortgage lending with AIB, Bank of Ireland, and Permanent TSB increasing their grip, even before Ulster and KBC have transferred a single mortgage.

The shock decision by Ulster Bank and KBC to close their doors is already having a "chilling effect" on competition in the Republic's mortgage market as home loan borrowers turn to much more expensive rivals, leading brokers have warned. 

Ulster and KBC, which offer among the cheapest mortgages, sent the banking market into crisis after they announced that they would pull out in a phased withdrawal over a number of years. 

But large parts of their mortgage loan books will likely end up with Permanent TSB and Bank of Ireland, who offer among the costliest mortgage rates in the Republic. 

Mortgage brokers now warn that their exit plans just weeks after the announcement have already led to further concentration in mortgage lending with the remaining big three, AIB, Bank of Ireland, and Permanent TSB increasing their grip, even before Ulster and KBC have transferred a single mortgage.

Open for all new business

In a letter Ulster Bank sent in recent days for prospective customers, the bank said it will remain open for all new business and maintained it was ready to support homebuyers with mortgage products. 

However, the bank told customers that by going ahead with the loan application "you are acknowledging and agreeing that you understand that Ulster Bank Ireland Dac has made an announcement that the bank has commenced a phased withdrawal from the Irish banking market which will be likely to result in the transfer of your product to another provider".

Broker Michael Dowling of Dowling Financial said he acknowledged that Ulster Bank was obliged to inform customers about its exit plans but that the wording will make it even more difficult to sell an Ulster mortgage to new customers, which will only benefit the biggest lenders that already have a huge slice of the mortgage market.      

There is resistance by new customers to Ulster already, and we are seeing resistance to KBC, because customers will think the worst."

Mr Dowling said that at a 90% loan to value, KBC offers a rate of 2.3% for a three-year fixed mortgage loan and a rate of 2.5% for a five-year fixed loan. 

Bank of Ireland – which plans to buy most of KBC's €10.5bn mortgage book – offers an equivalent rate of 3% in both cases. He said Ulster offers a 90% rate at 2.45% fixed for five years compared with Permanent TSB – which is in line to buy a significant part of Ulster's €14bn mortgage loan books – which offers rates of 2.8% to 3%, depending on the loan amount.

Karl Deeter, chief executive at OnlineApplication.io, a mortgage platform, said "few" customers are going to Ulster Bank anymore. 

"People who know that Ulster Bank and KBC are on the block are not going to go to them even though the lenders say they are open for business," he said. 

If you are saying you are leaving, you are no longer a viable long-term partner for the majority of people looking for a mortgage.”  

Darragh Cassidy of Bonkers.ie said mortgage customers were already turning away, even though KBC and Ulster Bank have the best rates.