Thursday 8 December 2016

Bank of Ireland to resist variable interest rate cut as AIB reduces rate to 3pc

Charlie Weston Personal Finance Editor

Published 09/06/2016 | 12:49

Bank of Ireland
Bank of Ireland

BANK of Ireland is to hold firm and resist attempts to cut its variable rate.

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But AIB will reduce its variable rates to 3pc for all customers, while Permanent TSB will cut its rate to the same level for new customers.

There will be a reduction in the Permanent TSB manged variable rate, where existing mortgage holders get a reduction in rates based on the equity they have in their homes, by 0.25pc.

In a major new report on the banks from Davy Stockbrokers, analysts say that Bank of Ireland will resist political pressure to reduce its variable rate for existing customers.

Last month TDs passed legislation that aims to give the Central Bank new powers to tackle high interest rates, in a move that will provide hope for 300,000 variable-rate customers.

The Fianna Fáil bill was re-introduced in response to a failure by many of the main lenders to pass on lower interest rates set by the European Central Bank (ECB).

But Davy, which Davy acts as stockbroker to Bank of Ireland (BoI) and Permanent TSB, says the Richie Boucher-led bank will continue to face down the renewed pressure on it to cut rates.

The bank has one of the highest in the market at 4.5pc.

It has cut its fixed rates for new and existing customers, and will do so again, Davy said.

The broker said: “BOI has made only a marginal cut to its new variable rates and nothing for existing customers.”

However, Davy analysts Emer Lang and Stephen Lyons said in the research note that Bank of Ireland will not move on its standard variable rate (SVR).

“We assume over our forecast horizon that BOI does not decrease its SVR rate but that fixed rates reduce in order to maintain its existing share of 33pc [of the new mortgage lending market].”

AIB has made significant reductions to its variable rates for both new and existing customers. From next month the AIB variable rate is coming down to 3.4pc.

The broker reckons AIB’s variable rate will come down to 3pc for new and existing borrowers.

Permanent TSB has made more modest cuts to its variable rates.

But Davy predicts its variable rate for new borrowers will fall to 3pc, from 4.5pc at present.

The broker says its managed variable rate – which offers lower interest rates depending on how much equity is built up in the property – will come down by 0.25pc. The rates are between 3.7pc and 4.3pc at present.

The broker predicts a higher take up of the managed variable rate, which is just 25pc at present.

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