AIB and Bank of Ireland ready new approaches to wipe floor with rivals
Ireland’s top two banks are advancing plans to preserve their vice-like grip on the €5bn mortgage market.
Allied Irish Banks (AIB) will relaunch its EBS mortgage brand within weeks, using it to match the cashback incentives that have proved highly successful for rival lenders such as Permanent TSB.
Bank of Ireland, meanwhile, is preparing to return to the broker channel by November, having been locked out of intermediary sales for the past three years as a condition of the state bailout it received during the banking crisis.
Chief executive Bernard Byrne told AIB staff last week that the group would launch a multi-brand strategy within weeks, with its EBS mortgage subsidiary introducing a different pricing model from the rest of the bank.
The move is expected to see EBS launch a cashback incentive to head off advances by rivals Bank of Ireland and PTSB in the mortgage market. In an internal briefing for staff, Byrne said AIB was introducing “more brand differentiation” within weeks to “meet the needs of different cohorts of customers”.
Despite promoting EBS as a separate brand, AIB has pursued a uniform pricing policy across all of its distribution channels since taking over the former building society and its broker unit Haven Mortgages in 2011. This policy was dropped last week when the bank announced a surprise reduction in mortgage rates, but for AIB customers only.
While Haven will match AIB’s reductions later this week, EBS customers are not expected to benefit.
This is seen as the first step in the introduction of a cashback strategy that will lure new customers to EBS by rebating a percentage of the amount borrowed. They will pay for the incentive through higher mortgage rates than those charged by AIB, which will not offer cashback.
Bank of Ireland has shaken up the market since it started paying new customers 2% of the amount borrowed within 45 days of drawing down the loan. The move helped it grow its share of new mortgage lending from 26% to 31% in the second half of 2015, matching that of AIB.
Its success has since been copied by Permanent TSB, which reported last week that cashback incentives contributed to a 10% increase in mortgage applications and 4% growth in drawdowns so far this year.
Meanwhile, Bank of Ireland is stepping up its preparations for a return to the broker market, which now accounts for a fifth of mortgage sales.
Under a restructuring deal approved by the European Commission in 2013, it agreed to exit the broker market for three years and to sell ICS, its broker distribution platform, and €223m of ICS mortgages.
The bank is preparing for the expiry of the three-year lock-out in November by head-hunting a team headed by Sean L’Estrange that led Ulster Bank’s entry to the broker market last year.
House hunters are turning increasingly to brokers for help in navigating Central Bank of Ireland credit rules that require most customers to have a mortgage deposit of at least 20% and limit them to borrowing no more than 3½ times their incomes.
According to the Association of Expert Mortgage Advisors, brokers have grown their share of total lending from 17% last year to 20%.