Hopes of mortgage cut dashed by banks in 'sneaky' rise
Published 25/04/2013 | 05:00
TENS of thousands of homeowners will be hit with a hefty increase in their monthly mortgage payments after banks hiked rates – just days ahead of an expected cut at European level.
News of the rises at AIB and EBS emerged as shareholders at Bank of Ireland sanctioned the €843,000 pay packet of chief executive Richie Boucher.
The decision came after the bank lost €2bn last year and Taoiseach Enda Kenny pleaded for top bankers to share in pay cuts requested by the Government.
AIB has been accused of launching a "sneaky" attack on its own customers after it confirmed it would be raising variable mortgage rates in the summer.
The decision affects borrowers who have variable mortgages with AIB, EBS and Haven and swings into effect from June.
A hike of up to 0.4pc in variable rates will mean a customer with a €300,000 mortgage will face an extra €66 a month in payments from June 1. This will amount to an extra €800 over a year.
Other banks are now expected to follow the lead – in a move that will affect a total of 300,000 mortgage holders.
Bank of Ireland and ICS would not rule out a similar increase, and said they were keeping their rates under review.
This is despite the European Central Bank (ECB) preparing to cut its interest rate to record lows of just 0.5pc next week. The ECB cut will benefit customers fortunate enough to have a tracker mortgage, but those with variables are unlikely to see any concessions made by the banks here.
Even if the banks do pass on a portion of the cut to variable customers, those with AIB, EBS and Haven will still be paying more come June. Brokers said the move will push up arrears.
Rates on variable mortgages with Irish banks are now almost double the level of rates on trackers, creating an inequitable system of haves and have-nots.
Banks are tied into following the ECB rates for tracker mortgages – which are losing them money – but can set their own variable rates, leading to accusations of cynical profiteering.
AIB is state-owned but Department of Finance officials admitted their hands were tied when it came to preventing another rise in mortgage costs.
This newspaper reported in February comments from AIB boss David Duffy that the bank was preparing to increase its variable rates, but the scale of the increase will shock many mortgage holders. AIB's variable rate for residential customers will rise 0.4pc to 4.4pc.
At EBS the owner-occupier rate will jump 0.25pc to 4.58pc. And Haven's rate goes up 0.25pc to 4.6pc – one of the highest variables in the market.
A 0.4pc rise at AIB means an extra €22 in monthly repayments for for every €100,000 borrowed.
Rates for 'loan-to-value' residential and buy-to-let mortgages are also going up by between 0.25pc and 0.4pc. The variable rate for investors at AIB will hit 5.35pc.
AIB's Fergus Murphy said: "Prior to this increase, AIB had the lowest standard variable rate in the market, but now regrettably must move more in line with market competitors."
But financial experts said the bank was hitting variable-rate customers because it cannot touch those on trackers or fixed rates. It was relying on the fact that many of its variable-rate customers were older, and have equity in their properties. It was hoping that these people would not go into arrears.
Head of the Irish Brokers Association, Ciaran Phelan, was scathing. "It seems somewhat sneaky of AIB to impose this increase ahead of the anticipated ECB rate cut," he said.
Already about one in 10 of the AIB group's residential mortgages are three months or more in arrears. And close to 18pc of buy-to-let mortgages are three months or more in arrears.
Despite the fact that the bank is 99.8pc state-owned, a Department of Finance spokesman said it could not intervene.
An agreement had been signed stating that the Government would not interfere in the day-to-day decisions of the state-owned banks, he said.
"While this decision by AIB is regrettable it is strictly a commercial decision by the board of AIB. The Irish taxpayer has invested over €20bn in AIB and it is essential that the bank is run in a commercial manner and in the best interests of the shareholder – the Irish taxpayer," it said.
The European Central Bank's governing council meets next Thursday when rates could be cut from 0.75pc to a record low of 0.5pc.