Ri­val banks ex­pected to re­duce mort­gage rates in re­sponse to AIB cuts

Irish Independent - - NEWS - Char­lie We­ston Per­sonal Fi­nance Edi­tor

MORT­GAGE lenders will now have to cut their rates in re­sponse to AIB re­duc­ing its vari­able, fixed and loan-to-value rates, ex­perts said.

Stock­broking an­a­lysts said AIB has now put huge pres­sure on Bank of Ire­land and Per­ma­nent TSB, in par­tic­u­lar.

AIB’s move to cut its vari­able rates by 0.25pc to 3.15pc from Novem­ber will mean a huge gap emerges with the Bank of Ire­land vari­able rate.

From next month, AIB’s vari­able rate will be 1.35 per­cent­age points lower than the Bank of Ire­land one.

Bank of Ire­land has a strat­egy to win mort­gage busi­ness by of­fer­ing up to 3pc of the value of mort­gages in cash-back to new cus­tomers. It may now de­cide to weather it out, or only slightly tweak its fixed rate of­fer­ing, an­a­lysts said.

But Per­ma­nent TSB is likely to be un­der pres­sure to re­spond to AIB’s rate cut.

The move by AIB to cut fixed rates, and re­duce its over­all in­ter­est rate mar­gins, also means there is now no ex­pec­ta­tion of a rise in Euro­pean Cen­tral Bank rates un­til 2019 at the ear­li­est, an­a­lysts said.

“AIB’s move po­ten­tially puts more pres­sure on the other banks to re­spond,” an­a­lysts at Good­body Stock­bro­kers wrote in a note to in­vestors.

Ex­perts also say that AIB’s move to cut its fixed rates from Mon­day by up to 0.5pc will help it pro­tect its lead­ing mar­ket po­si­tion in a grow­ing mar­ket.

Cuts are ex­pected in the com­ing weeks from EBS and Haven, which are both AIB sub­sidiaries.

And the re­duc­tions are also likely to raise fur­ther ad­di­tional com­pet­i­tive pres­sures across the mar­ket in due course, Good­body said.

In­vestec’s Philip O’Sul­li­van said that the Euro­pean Cen­tral Bank and whole­sale mar­ket rates of zero are set to con­tinue next year.

It will be 2019 or 2020 be­fore the “in­ter­est rate en­vi­ron­ment be­gins to nor­malise”, ac­cord­ing to Mr O’Sul­li­van.

Fianna Fáil fi­nance spokesper­son Michael McGrath said the AIB move shows that banks can af­ford to cut rates and still achieve more than healthy prof­its.

The onus now is on other banks to in­tro­duce fur­ther rate cuts if they don’t want to lose mar­ket share, Mr McGrath said.

He also called on Bank of Ire­land, Ul­ster Bank, Per­ma­nent TSB and KBC to in­tro­duce rate cuts.

Mean­while, the AIB Group has been called upon to im­me­di­ately cut the mort­gage rates at its EBS and Haven sub­sidiaries.

There are indi­ca­tions the bank­ing group may lower EBS rates in com­ing weeks, but the fail­ure to an­nounce EBS re­duc­tions along with the AIB cuts has an­noyed mort­gage cam­paign­ers.

Bren­dan Burgess of the Fair Mort­gage Rates cam­paign wel­comed the AIB re­duc­tions, but said a large gap had now opened up with EBS.

The EBS vari­able rate is 3.7pc com­pared with AIB’s, which is due to fall to 3.15pc at the start of next month.

“EBS cus­tomers are fu­ri­ous that they are not ben­e­fit­ing from these rate cuts. EBS is fund­ing its cash-back of­fers to new cus­tomers by charg­ing ex­ist­ing cus­tomers more. The quicker the Dáil bans these cash-back of­fers the bet­ter,” Mr Burgess said.

How the Ir­ish In­de­pen­dent ex­clu­sively broke the story yes­ter­day

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