A full-scale price war has broken out in mortgages as both AIB and Bank of Ireland have cut their variable mortgage rates to below 4 per cent.
The fall in mortgage rates to unprecedented low levels follows Bank of Scotland's entry into the market at the end of last month.
The rate cuts will mean savings of £34.50 a month on a £50,000 mortgage over 20 years with AIB, which has cut its variable rate by 1.26 percentage points to 3.99 per cent, exactly matching the Bank of Scotland offer.
A Bank of Ireland customer will save 50p more a month, as its rate has fallen by 1.29 points to 3.95 per cent. ICS, a Bank of Ireland subsidiary, has also announced a new rate of 3.99 per cent.
Bank of Ireland's and ICS's cuts take effect on Monday and AIB's on Tuesday.
First Active also reduced its introductory variable rate for new borrowers for the first year to 3.99 per cent, but existing borrowers will not benefit for the moment. First Active has kept its standard variable rate at 5.25 per cent despite the moves by the bigger banks. To match the AIB and Bank of Ireland cuts would cost First Active a third of its pre-tax profits, analysts estimate.
The banks will now be taking a large cut in the substantial profits they have been making from mortgages over recent years. This is likely to prove more difficult for the smaller banks and building societies than for the "big two" which are far less reliant on home loans.
Other lenders are likely to cut their mortgage rates next week. Irish Permanent, which last week cut its standard variable rate to 4.75 per cent, said it was keeping the rate under review. Mr Pat Farrell, head of marketing at EBS, said the society would be "reviewing its rates across the market and will retain its position as a leader in long-term mortgage value".
Mr Aidan Clarke, managing director of AIB Home Mortgages, said: "We have 15 per cent of the mortgage market and we see our natural share as 25 per cent. We have taken a view as to where mortgage rates are likely to stabilise and have decided to pass on the benefits to mortgage customers immediately."
Mr George White, head of residential mortgages at Bank of Scotland, said he was delighted that the big banks had followed suit. "We enjoy competition and I am sure we will compete," he said.