AIB variable rate customers set to benefit from rate cut

Almost 150,000 AIB customers with Standard Variable Rate mortgages are in line for an interest rate cut within weeks, the bank' chief executive, David Duffy has said.

The head of the bank - which is 99 per cent owned by the State - told an Oireachtas Finance Committee hearing that if market conditions and the bank's costs of funding continue to improve over the next month or two, as is widely anticipated, then it will be in a position to cut its SVR rates.

Mr Duffy did not say how much SVR rates, which are currently 4.1 per cent, could fall by, however with AIB currently offering fixed rates of 3.8 per cent, a general cut of at least 0.25 per cent is being anticipated.

For every quarter of a point a rate falls, the monthly cost of servicing a €100,000 mortgage is reduced by about €15. This means the average AIB SVR mortgage holder with an outstanding loan of €300,000 could see their monthly repayments fall by €45, a saving of more than €500 a year.

When asked why the bank could not implement a rate cut of this size immediately, Mr Duffy said the bank would need to see how it was performing over the first half of the year before it could act.

He denied that AIB had been profit taking from its SVR customers in recent years and said the ECB’s historically low rates painted a misleading picture of the bank’s costs as it only supplied 3 per cent of its funding.

All the State's main banks have been coming under intense political and public pressure in recent weeks to cut rates that at 4.2 per cent are far above the euro zone average of 2.47 per cent but the banks have stood firm in their reluctance to pass on European Central Bank (ECB) rate cuts to variable customers.

Most lenders only returned to profitability last year following the 2008 crash which is the reason they have put forward for their inability to pass on a sustained sequence of ECB rate cuts to more than 300,000 variable rate mortgage holders.