Rate cut to spark mortgage war

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.