Some 100,000 mortgage holders stand to benefit after AIB announced a 0.25 per cent reduction in its standard variable rate, the fifth rate reduction for existing customers in three years. However, variable rates in the Republic are still nearly double the euro area average, according to Central Bank figures.
Based on the AIB announcement, a customer will see an annual repayment saving of €315 on a €200,000 mortgage over 25 years. At current rates this represents a lifetime interest payment saving of approximately €7,800 on the same mortgage.
AIB has also added to its fixed-rate product offering with a new seven-year fixed-term rate at 3.5 per cent. The banks said this was to offer customers “medium-term certainty”.
This is accompanied by rate reductions across fixed rates, including a 0.5 per cent reduction on the five-year fixed rate. “AIB loan-to-value variable rates are now as low as 2.75 per cent, resulting in significant savings for new and existing customers,” said the bank.
Fixed-rate changes will come into effect from September 18th, while standard variable rate and loan-to-value changes apply from November 1st.
Fianna Fáil finance spokesman Michael McGrath said the rate cut would “hopefully force other lenders in the Irish market to follow suit”.
“What today’s announcement shows is that banks can afford to cut rates and still achieve more than healthy profits. The onus now is on Bank of Ireland, Ulster Bank, Permanent TSB and KBC to introduce further rate cuts if they don’t want to lose market share.
“There is a significant move in the Irish mortgage market towards fixed mortgage rates. This provides certainty for both the lender and the borrower, and I would hope the market will move to provide even better long-term fixed rates for customers.
Challenge their bank
“Mortgage customers now need to challenge their bank to give them a better rate or else be prepared to switch to another lender if this option is open to them.”
AIB managing director of retail and commercial banking in Ireland Robert Mulhall said the bank’s strategy, when conditions allowed, was to “pass on variable rate reductions to both new and existing customers and we continue to do that”.
“Therefore, existing standard variable rate customers will automatically benefit from these new variable rates. We have cut our rates over the last three years by 1.25 per cent for standard variable rate customers.
“AIB’s market leading variable rates provide the best of value, while our competitive fixed offerings allow new and existing customers to fix their rates if that’s what they are looking for.
“These improvements in variable rate offerings benefit over 100,000 customers, leading to very significant annual savings. The impact of the five rate reductions on a mortgage of €200,000 over the last three years is to save the customer approximately €1,500 per year based on this rate reduction.”
