Mortgage rate war on cards after new cuts

AIB trims variable and fixed loan rates Competing banks will be forced to follow suit Families could save up to €500 a year

AIB is set to spark a mortgage war with a string of rate cuts, in a move that will save families hundreds of euro each year.

The bank is cutting its variable rate for new and existing customers by 0.25pc, the

Irish Independent can reveal. This will take its variable to 3.15pc, the lowest in the market. The move will benefit 100,000 existing AIB customers, saving families up to €500 a year.

AIB is also cutting its fixed rates by up to 0.5pc, in a sign that it does not see European Central Bank rates rising soon.

The rate moves put pressure on other lenders, especially Bank of Ireland, Ulster Bank, Permanent TSB and KBC Bank. They are likely to have to respond with cuts.

It comes three years after research by consumer campaigner Brendan Burgess, first published in this newspaper in 2014, found that Irish variable rates were the highest in the eurozone.

Legislation to cap mortgage rates introduced to the Dáil by Fianna Fáil’s Michael McGrath has still not been enacted, a year and a half after being proposed.

AIB is set to rattle its competitors with a string of cuts to its mortgage rates in a move that is expected to force other lenders to respond.

The recently floated bank is cutting its variable rate for new and existing customers by 0.25pc, the Irish Independent can reveal.

This will take its variable to 3.15pc, the lowest in the market. The move will benefit 100,000 existing AIB customers, saving a family with a €200,000 mortgage €315 a year.

The bank is also cutting its fixed rates by up to 0.5pc, in a sign that it does not see European Central Bank (ECB) rates rising soon. Some commentators expect the ECB to hike its key rate by the end of next year, but AIB does not see such an early rise happening.

A new seven-year fixed rate of 3.5pc, considered by experts to be competitively priced, is being introduced by AIB.

The lender, which is still 70pc-owned by the State, will now have a loan-to-value (LTV) rate as low as 2.75pc for buyers with large deposits or existing mortgage holders with a lot of equity in their homes. The LTV rate is to fall by 0.35pc.

AIB has the largest mortgage market share at 36pc. The latest cuts mean it is likely to maintain that position.

The new fixed-rate changes come in from next Monday, with the variable and LTV rate changes taking effect from November 1.

It is the fifth time in three years that the bank has cut its variable-lending rate. The rate moves will pose a huge challenge to other lenders, especially Bank of Ireland, Ulster Bank, Permanent TSB and KBC Bank. They are likely to have to respond with their own cuts.

Most lenders have been competing by lowering their fixed rates, or LTV rates, with only AIB cutting its variable rates.

Permanent TSB recently launched a new product that pays cash back to new mortgage holders every time they make a repayment. Bank of Ireland has bluntly stated that it will only cut its fixed rates.

Head of retail banking at AIB Robert Mulhall revealed that the group was looking at cutting rates at its EBS and Haven divisions in the coming weeks.

Asked why the rates were being cut again now, Mr Mulhall said the bank was keen to pass value back to its customers at a time when its funding position allowed it to do so.

He stressed that AIB did not see ECB rates rising in the medium term.

“Our strategy is to pass value back to customers when we have the funding opportunity. We don’t believe in gimmicks,” he said in relation to cash-back and other incentives.

He said the five cuts in AIB’s variable rate in the past three years would have saved a typical mortgage holder family €1,500 cumulatively a year.

Mr Mulhall admitted that the cuts were partly motivated to ensure AIB maintains its top spot in the mortgage market.

The huge reductions come three years after research by consumer campaigner Brendan Burgess, first published in this newspaper in 2014, found that Irish variable rates were the highest in the eurozone.

Rates here are around 1.5pc higher than the equivalent in the eurozone.

Legislation to cap mortgage rates, which was introduced to the Dáil by Fianna Fáil’s Michael McGrath has still not been enacted, a year-and-a-half after being proposed.