Lenders under pressure to follow AIB’s rate cut

Rival mortgage providers are under pressure to follow AIB’s surprise move yesterday to cut variable and fixed mortgage rates – its first such reduction in over three years.

The move, which includes a 0.25 per cent cut in its standard variable rate and the introduction of new fixed rates, will benefit 146,000 mortgage account holders at AIB and its EBS and Haven subsidiaries.

The move partially reverses State-owned AIB’s decision in April 2013 to increase rates despite a series of ECB cuts. It comes as rising house prices have led to increasing competition in the mortgage market.

Trigger response Bank of Ireland, Permanent TSB, Ulster Bank and KBC have all declined

to say if they would be following suit. However, analysts said AIB’s move was likely to trigger a response. The cut will see the bank’s standard variable rate mortgage fall to 4.15 per cent from 4.4 per cent from next month, with the EBS rate dropping to 4.33 per cent and Haven’s falling to 4.35 per cent.AIB said customers with a €200,000 variable rate mortgage would save more than €330 a year, based on a typical 25-year term.

The group is also introducing new fixed rates across all its subsidiaries; including 3.80 per cent for three years and 3.90 per cent for five years.

AIB and Haven are cutting their loan to value (LTV) rates by 0.24 per cent, while EBS is reducing all its LTV rates by 0.25 per cent. AIB and Haven customers with an LTV of 50 per cent or less will see their interest rate drop to 3.85 per cent, while EBS customers will see it fall to 3.80 per cent.

Revised variable rates come into effect from December 1st, with fixed rates to come into effect from November 4th.

Priority shifting

Merrion Capital

analyst Ciarán Callaghan said the cut was likely to cost the bank €40 million but that the priority was once again shifting to market share, with residential property prices up 15 per cent in the past year. “Competition has intensified across the mortgage market in recent months, with lenders once again focusing on pricing to defend market share or chase volume growth,” he said.

Separately, Europe’s new senior banking regulator, Danièle Nouy, has given strong support to the Central Bank’s proposed new mortgage rules, saying it was “irresponsible to give loans to people who possibly will not be able to repay them”.

Ms Nouy, who is chair of the supervisory board of the Single Supervisory Mechanism, which will oversee bank regulation, said she could understand criticisms from new borrowers, but that the system’s stability had to have priority.