AIB steps up mortgage battle with new low rate
Tuesday February 10 2009
AIB yesterday turned up the heat in a mortgage price war for first-time buyers by offering the lowest interest rate in the market.
The bank is set to announce today it is to offer new buyers a one-year fixed rate of 2.49pc, well below the rates offered by other banks in the market.
The new discount rate is fixed for one year and will be on offer from next Monday until the end of March. Buyers will be able to borrow up to 92pc of the value of the home. The new rate is just 0.49pc above the European Central Bank rate of 2pc.
AIB, Halifax and Bank of Ireland are currently the only lenders competing for new buyers, with each bank trumping the other over the past few months by offering lower interest rates on mortgages for new purchasers.
These lenders are attempting to lure new buyers by offering 'loss leader' deals initially, on the basis that they will have the borrowers' mortgage business for between 20 and 30 years.
It is understood these three lenders are managing to sign up new customers, despite the fact that the overall property market has contracted sharply.
Value
Now Ulster Bank is expected to announce a new offering for first-time buyers later this week. AIB is also set to drop its standard variable rate mortgage offering, which is currently 3.3pc.
It will be replaced by three different rates, with the rate new buyers and those coming out of fixed rates get depending on how much they are borrowing relative to the value of the house.
The bank is set to offer a new Loan To Value (LTV) standard variable rate, with those borrowing 50pc or less than the value of their home a rate of 3.25pc, rising to 3.45pc for those borrowing under 80pc.
For those borrowing 80pc or more then the rate will be 3.65pc.
There was more good news for borrowers yesterday when Halifax said it was cutting the interest it charges on its fixed rate mortgages.
The Scottish-owned bank has reduced its two-year fixed rate from 4.2pc to 3pc, its three-year rate from 4.3pc to 3.4pc and its five-year rate from 4.4pc to 3.8pc. Moves to reduce fixed rates come after the ECB hinted strongly last week that homeowners can expect another cut in rates in March.
Halifax is also reducing the interest it pays its customers who stay in credit on their current accounts. It said that, effective from yesterday, it will reduce the interest it will pay on credit balances up to €2,000, from 10pc to 7pc.
The bank said it was the first time it had cut the rate it pays on credit balances on its current account since it launched the product in April 2007.
- Charlie Weston Personal Finance Editor
