Lender to follow rival BoI's lead by increasing variable rate
Published 05/08/2010 | 05:00
BELEAGUERED bank AIB admitted yesterday it expects to put up standard variable mortgage rates by half a percentage point in the next few weeks.
The bank, which said it made record losses of €2bn for the first half of this year, claimed it had no choice but to follow its rival Bank of Ireland by hiking rates on variable mortgages.
Managing director Colm Doherty confirmed a report in yesterday's Irish Independent, when he said the bank would "reluctantly" follow Bank of Ireland by increasing standard variable mortgage rates in the next few weeks.
"I think, reluctantly, we're going to follow all the other banks in increasing interest rates.
"The increase is likely to be 50 percentage points in the next few weeks to months," he added.
"The price we have to pay for deposits means we are losing money on mortgages. It is unsustainable and if we don't do something, we won't be able to continue to lend to the mortgage market."
The AIB boss defended the hike saying: "We think that it is a moderate increase . . . and can be accommodated by mortgage holders in the main."
Mr Doherty said the bank was issuing 40pc of all new mortgages, up from 17pc before the credit crisis struck.
Bank of Ireland announced on Tuesday that it would be hitting homeowners on standard variable rates with a rise of 0.45pc, in a move that will add €60 a month to the cost of repaying a typical €250,000 mortgage.
AIB's increase in standard variable rates is set to be followed by KBC Bank by the end of the month.
And Irish Nationwide Building Society will increase its standard variable rates early in the autumn.
In the past few weeks, EBS Building Society increased its standard variable rate for the second time this year, while the third rise in Permanent TSB's variable rate in a year took effect on Tuesday.
Almost 300,000 people have standard variable rates. Most people who bought a home in the past two years would have a standard variable rate.
Lenders can put up standard variable rates at will.