Irish Financial Review

Cost of Mortgages Fall – Central Bank

New research from the Central Bank shows that interest rates on mortgages have fallen.

Mortgage costs have fallen while loans and credit cards have risen

The weighted average interest rate on outstanding mortgage loans with an original maturity over five years (which accounted for 99 per cent of outstanding mortgage loans) was 2.98 per cent at end-May 2012. This was 2 basis points lower than at end-April 2012 and 44 basis points below the rate reported at end-September 2011. This means that many mortgage holders here now pay some of the lowest mortgage rates in the Eurozone.

Central Bank statistics also show that the cost of credit cards and overdrafts have gone up slightly. The average interest rate on cards, one-year loans and overdrafts charged to households rose slightly in May to 8.68pc.

Overdraft rates range from just under 10% to almost 16% between various banks. In addition,  surcharge interest of up to 12pc is charged for an unauthorised overdraft.

The Central Bank said the interest on loans to buy items such as cars were also up, at an average of 5.88pc.

The ECB cut rates to a new historic low this month.

Earlier this month, the European Central Bank cut its benchmark lending rate to a new historic low of just .75%. AIB has already announced that it will not pass on the latest rate reduction to its Standard Variable Rate (SVR) customers. EBS (now part of AIB), Bank of Ireland, National Irish Bank, KBC Bank, Irish Nationwide (now part of IBRC) — are still considering whether to pass on the latest cut to variable customers. Permanent TSB and Ulster Bank have both announced that they will pass on the latest rate cut. Bank of Scotland, which includes Halifax said it will pass on the full value of the latest rate cut. However, it is not expected that Bank of Scotland/Halifax have many SVR customers to begin with as they  was the first bank to introduce tracker mortgages as a way of building market share in the early 2000’s. .

Deposit interest mixed

Central Bank statistics also shows that the interest being paid on short-term deposits have fallen while interest paid on longer term deposits (18 months and greater) have risen slightly.

Many banks have recently been forcing more customers to keep higher balances with their bank as a means of avoiding fees and charges. They have also been structuring their services that reward only those that can lock away funds for longer periods of time.

VISA and Mastercard in Record Settlement

Visa and Mastercard make $7.25bn fees dispute settlement

VISA and Mastercard in record settlement

Visa and Mastercard and major US banks have agreed to a $7.25bn (£4.65bn) settlement to retailers over card fees.

The seven-year case over firms colluding to fix the fees that merchants pay to process credit and debit-card transactions.

The settlement is estimated to be the biggest of its kind in US history.

It involves a $6bn payment to merchants and an agreement to reduce swipe fees for eight months, valued at $1.2bn.

An additional $525 million has been set aside to pay to the stores which sued individually, including grocery chains Kroger and Safeway and the Rite Aid pharmacy chain.

Previous settlements

The settlement involves credit card giants Visa and Mastercard, as well as major issuing US banks including JPMorgan Chase, Bank of America and Citibank.

Visa and Mastercard have already paid a combined $3bn to settle a lawsuit over their “honour all cards” policies, which tied acceptance of credit to debit cards.

The US Department of Justice also brought and settled a civil suit against the two firms in 2010 over policies that prevented stores from offering their customers cheaper forms of payments.

However, that settlement left in place credit card company rules that stop stores from charging customers more when they use certain payment cards.

Bank branch closures set to increase

AIB has informed staff that it will close branches and force customers to complete transactions through An Post.

AIB’s decision will see some of its 270 branches closing while a decision on EBS remains unknown.

Internet banking to replace branch banking

The AIB announcement follows a similar one from NIB a week earlier where it publicized its decision to close the majority of its branch network through Ireland.

Banks are increasingly moving towards a ‘minimal contact’ strategy and embracing technology as the primary means of reducing costs and increasing profits.

Banks have also begun to introduce a full range of fees and charges for a wide range of services and this trend is likely to continue for some time until they have optimized these revenue generation channels.

Cost and convenience will become the central pillars in the ongoing bank restructuring drive nationally. Services will cost more and there will be less convenient banking for customers who rely on the traditional branch network.

New technology is being increasingly pushed as the new bank branch and those who prefer more personal contact, a visit to the local post office will simply replace a visit to the branch.

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