The Ulster Bank Group, which includes First Active, is the only mortgage lender in the State that will not pass on the full three-quarters of a percentage point cut in interest rates introduced by the European Central Bank yesterday.
Ulster Bank said it would reduce its standard variable rate by just 0.5 per cent from January 1st and said the reason for this was the "increased cost of money being experienced throughout the banking sector". Holders of a tracker mortgage with Ulster Bank Group or First Active will see a 0.75 per cent fall in their repayments.
As a result the Ulster Bank group, which includes First Active, is the only significant mortgage lender in the State not to pass on the full rate. The group is one of the largest mortgage lenders here with an estimated 20 per cent share of the market.
Earlier today five banks confirmed their intention to pass on the full cut. This group included; Irish Nationwide, EBS, Permanent TSB, KBC and National Irish Bank (NIB).
Permanent TSB, the largest mortgage lender in the State with around a fifth of the market, said it would pass on the rate reduction to tracker and variable rate mortgage holders but warned “high interbank rates could prevent future reductions being passed on in full”.
EBS said it would reduce its standard variable rate mortgages by 75bps to 4.13 per cent for the January mortgage repayments. National Irish Bank and Irish Nationwide said the interest rate cut announced yesterday would be passed on to holders of standard variable rate and tracker mortgages.
KBC (formerly IIB Bank), the fifth largest mortgage lender in the State with a 12 per cent market share, said it planned to pass on the full rate cut to "owner-occupier residential mortgage customers".
The cost of borrowing in euro for three months – the inter-bank rate which sets the banks' own mortgages costs – fell to its lowest level in more than two years today, though, at 3.56 per cent, the rate is still well above the European Central Bank base rate of 2.5 per cent, despite yesterday's rate cuts.
The difference between the two rates is squeezing bank profit margins and leaves banks making losses or breaking even on some of their existing mortgages.
The global banking crisis over the past 16 months has increased the cost of bank funding. However, the series of interest rate cuts and various state bank guarantees and bailouts has reduced funding costs, though inter-bank rates still remain high.
Yesterday, AIB, Bank of Ireland and Halifax-Bank of Scotland (Ireland) confirmed they would pass on the full reduction to customers on variable mortgage interest rates.
The reduction from 3.25 per cent to 2.5 per cent is the sharpest cut in the 10-year history of the ECB. The change is likely to result in a fall of €43 for every €100,000 borrowed based on a 30-year term loan.
The ECB has reduced interest rates from 4.25 per cent to 2.5 per cent in three successive cuts over just two months. Borrowers with a €300,000 mortgage over a 30-year term will now pay €309 less in monthly repayments compared to September.
Yesterday the Bank of England cut its interest rate by one percentage point to 2 per cent, its lowest level since 1951.
The higher interest rate cut from the UK central bank pushed sterling to a record low against the euro last night, which traded at 86.9p against the currency, the strongest level since it was created in 1999.