Rate cut to spark mort­gage war

Irish Daily Mail - - News - By Chris­tian McCashin

A NEW mort­gage price war is ex­pected to break out af­ter the coun­try’s largest lender an­nounced it is cut­ting rates.

AIB an­nounced a 0.25% cut in its Stan­dard Vari­able Rate, the fifth rate re­duc­tion for ex­ist­ing cus­tomers in three years.

The cut will save a cus­tomer with 25 years left on their mort­gage €3 a week for every €100,000 they have bor­rowed, or €156 a year.

That means a mort­gage-holder with a €250,000 loan will save al­most €400 a year – or €7.50 a week.

The re­duc­tion brings the rate down to 3.15%, which is the low­est vari­able rate on the Ir­ish mar­ket.

How­ever, Ire­land’s av­er­age rate of 3.35% is still nearly dou­ble the eu­roarea av­er­age of 1.83%.

AIB also an­nounced a re­duc­tion in its fixed rates, in­clud­ing a 0.5% cut in its five-year fixed rates. And af­ter the an­nounce­ment, other banks said their rates were ‘un­der re­view’, and now ex­perts be­lieve they will swiftly fol­low suit, spark­ing a price war.

When AIB cut its rates last year, one bank matched it with an an­nounce­ment within hours.

Fianna Fáil fi­nance spokesman Michael McGrath TD said: ‘It is a pos­i­tive step for­ward in the bat­tle for fair mort­gage rates in Ire­land. There’s still some dis­tance to go but, hope­fully, this an­nounce­ment will pro­voke the other lenders now to cut their rates also. Oth­er­wise, they face the prospect of losing mar­ket share.’

Mark Whe­lan, of price com­par­i­son web­site bonkers.ie, de­scribed the cut as ‘ex­tremely pos­i­tive’. He said ‘They were the first bank to break the stag­na­tion on rates in early 2016 when they did the same thing – 0.25% off the stan­dard vari­able rate.

‘That caused a lit­tle bit of a flurry at the time, KBC re­acted on the very same day. So it’ll be in­ter­est­ing to see if any­one re­acts quickly this time,’ he said.

‘As well as cut­ting fixed rates, they’ve cut another 0.25% off their stan­dard vari­able rate. So credit for buck­ing the trend and be­ing a mar­ket leader with those kind of bold moves,’ Mr Whe­lan added. ‘The big­gest news of this cut is the First Time Buyer Rate, it’s gone from 3.5% to 3.15% for a loan to value ra­tio of over 80%.’

The cut will ap­ply to both new and ex­ist­ing AIB cus­tomers, with 100,000 mort­gage hold­ers to ben­e­fit from the re­duc­tion.

AIB has an­nounced cuts in its fixed and stan­dard vari­able rates of 0.5% and 0.25% re­spec­tively, wel­come news for the many thou­sands not on tracker mort­gages who have paid well over the base rate for years now, and those with mort­gages of €250,000 will save €7.50 a week on their re­pay­ments.

An­a­lysts say that the other main banks now have no choice but to fol­low suit, and this will in­ject the first real com­pe­ti­tion into the mar­ket since the fi­nan­cial crash that be­gan ten years ago this week.

We are all for com­pe­ti­tion, be­cause it is the only lever that ac­tu­ally works in favour of the con­sumer, but we also must tread cau­tiously. It was the ar­rival of for­eign banks of­fer­ing low in­ter­est rates that led to the race to the bot­tom in the early Noughties. Cuts are wel­come, but pru­dence must be at the heart of all de­ci­sions. Lending rules must stay strict and sub­stan­tial.

We are get­ting out of the mess at last, and we must en­sure we stay out of it.

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