AIB, First Active and Ulster Bank have become the first financial institutions to respond to the ECB's latest rate reduction by cutting half a percentage point off their variable mortgage rates.
The European Central Bank reduced its key rate to 3.25 per cent yesterday, the lowest level since February 2000. The half-point cut, its fourth this year, follows similar cuts by the US Federal Reserve and the Bank of England, as the central banks bid to boost shattered confidence after the September 11th US attacks.
As a result of the monetary easing, AIB's standard variable mortgage rate will fall to 4.25 per cent, the lowest on the market. Ulster Bank's rate comes down to 4.6 per cent, while First Active's rate will be reduced to 4.74 per cent.
The cuts will result in savings of £13.38 per month on a £50,000 (€63,500) mortgage taken out over a 20-year period with AIB. Those with a £100,000 mortgage will save £26.76 per month and savings on a £150,000 mortgage will come to £40.14. However, there are significant differences in the timing of the introduction of the rate cuts.
Ulster Bank is quickest off the mark, reducing its rates with effect from the close of business today.
AIB's rate will fall with effect from the close of business on Monday, November 19th.
First Active's cut will take the longest to feed through to customers. New borrowers can avail of the lower rate from next Monday, but existing customers will have to wait until December 13th to benefit from lower costs. Meanwhile, other lending institutions are reviewing their rates.
Bank of Ireland, which cut its three-, five- and 20-year fixed rates on Wednesday in anticipation of the ECB move, said its variable rate was now under consideration.
The State's largest mortgage lender, Irish Permanent, is also reviewing its rates. National Irish Bank said its new rates would be decided at a policy meeting next week while ACC, Bank of Scotland, EBS and IIB Bank also said their rates were under review.
A number of institutions offer tracker mortgages, which are tied to the ECB's official rates, and these have already started to fall.
The ECB has cut interest rates three times since August. The first reduction, on August 30th, reduced official rates by a quarter of a percentage point to 4.25 per cent.
The September 11th attacks on the US then accelerated the rate cutting process. Since then, official rates have been cut twice, both times by half a percentage point. The first cut, to 3.75 per cent, was announced on September 17th while yesterday's cut brought rates down to 3.25 per cent.
However, financial institutions have been criticised for not passing on the full cuts - only ACC and Ulster Bank had done so before yesterday's fresh rate cut - and for delaying their implementation. A number of lenders, including Irish Permanent, EBS, First Active and Bank of Scotland, did not pass on the September rate cut to mortgage holders until this month.
Meanwhile, the Irish Small and Medium Enterprises Association is not happy that the full benefits of ECB reductions have been passed on to small businesses either. It called on the banks to cut rates immediately, in line with the ECB's half-point reduction.
"Small business is paying threefold above the actual cost of lending, which is in stark contrast to what blue-chip companies pay," the association said. "This is not a time for profiteering, especially when the economy is dramatically slowing," it added.
Decisions on reductions in general lending and deposit rates have yet to be announced by the financial institutions.
ECB cut good news for economy, page 2
