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Mortgage market strategies still feature broker channel Back  
In the context of increased competition in the ever-growing mortgage market, Michael Dowling assesses the market position of the top five lenders.
In looking at the mortgage market in Ireland, one is faced with a scenario that a cosy cartel operated and indigenous lenders were operating on margins of up to 2.5% above cost of funds.

Thankfully, with the entry of Bank of Scotland and other lenders considering moving here, customers can expect greater competition, cheaper mortgages and a significantly better range of mortgage products.

The Bank of Scotland is currently offering variable rate mortgages at 3.69%, APR 3.80% which is an operating margin of 0.7%. The nearest Irish competitor is 4.25%, APR 4.4%.

This information is by way of background to a review of the mortgage share which our main lenders have in this market.


EBS is the market leader and has the unrivalled position of being our cheapest lender before the entry of Bank of Scotland. The EBS has an excellent name and reputation in the market and is a mutual organisation which allows it offer cheaper mortgages as it does not have a shareholder base clamouring for higher profits.

The fundamental distribution channel is its branch network and some tied agents and it does very little business with mortgage brokers.

There is no doubt moving forward that EBS will experience funding difficulties to sustain its number one position and the profit erosion which competition with Bank of Scotland will bring. It will be interesting to see if it continues its policy of branch franchising whereby the overhead of a full branch is replaced by a tied agent who is paid commission for business instructions and processing. This strategy has worked very successfully for them and I expect it will in the future.

Irish Life & Permanent

Irish Permanent has maintained its strong presence in the market and the recent amalgamation with Irish Life plc will add to its profile. Irish Permanent has four main distribution channels, namely its branches, mortgage brokers, agents and a small but increasing number of tied, branded mortgage outlets.

The branch network is well regarded and their locations well spread. With the evolution of its mortgage centre in its head office to look after the mortgage broker channel, the branches are under greater pressure to produce more business. Similar to all organisations, branches are expensive to operate and there is no doubt but that some will not survive. Interestingly, Irish Permanent closed five branches last year without any fuss.

The mortgage broker accounts for around 40% of its new business and this level will persist, provided the investment in service and technology continues.

Irish Permanent have recently opened a branded mortgage shop and I foresee the number of these outlets increasing.

Bank of Ireland

Despite AIB being a larger bank, Bank of Ireland has a heavier reliance on the Irish market and, as a result, has a larger share of the mortgage market than AIB.

Bank of Ireland distributes its product through its retail network, ICS Building Society and mortgage shops. The bank has adopted a clever strategy in using ICS to attract mortgage broker business and operate the mortgage shops. ICS has no retail branches now; they were all closed or replaced as mortgage shops. The mortgage broker is an excellent source of business for ICS and the organisation is well liked by the broker community.

There is no doubt that, due to its financial strength, Bank of Ireland can compete with anybody but it has never compromised profit for market share. The synergy and costs savings by having all mortgage applications irrespective of source, processed in one centre, currently in the IFSC has helped but greater cost savings can be made.

Bank of Ireland will maintain its position moving forward.


AIB has two distribution channels, its branches and Allied Irish Finance, which looks after the broker channel.

Similar to Bank of Ireland the retail presence is very strong and its sheer size will attract new mortgage business. It is interesting to note that it is only in the last two years that AIB has really competed on rate, which has allowed it maintain its position.

First Active

The entry of Bank of Scotland and the current unrest within the organisation do not give one great confidence that First Active will be able to compete in the long term.

However, I expect their market share to improve by the year end as it has been the most aggressive lender in the market this year. The desire to increase market share and please the stock exchange has proved irresistible.

First Active has two distribution channels, namely its branches and mortgage brokers. However, with the imminent closure of 25 branches, this channel will come under greater pressure to produce. Staff morale is not good and a strike is possible in the early part of 2000.

The mortgage broker supports First Active and will continue to do so. However, service levels have disimproved due to the factors raised earlier. It will be interesting to see if First Active can compete on rate and whether it can meet the technology requirements of its mortgage brokers.

As I have said, the year ahead will be very interesting and the impact of Bank of Scotland will be the major talking point. What percentage of the market will they have next year?

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