Top bank brings in mortgage rate rise
AIB move signals end of record low interest era
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THE era of historically low interest rates is coming to an end after one of the country's biggest banks hiked the cost of its fixed-rate home loans yesterday.
AIB is increasing the cost for homeowners who opt for a three-, five- or 10-year fixed rate.
And other lenders are set to follow suit imminently.
Economists said the move was a sign that the European Central Bank (ECB) could soon begin raising rates again after a record series of seven cuts.
Although that will cause pain for mortgage holders, analysts said it showed that banks, at least, have decided the worst of the economic collapse could be over.
AIB said its new rates would take effect immediately.
The rise comes just a day after the Irish Independent warned homeowners to lock in to fixed rates now as they begin to rise again.
It is the first indication that the ECB's policy of slashing interest rates to a historic low of just 1pc could be coming to an end.
AIB insisted the move would not mean it would make higher profits on home loans. It said the increases were in response to higher lending costs in the financial markets.
The hike by AIB reflects the fact that the interest rates that banks charge each other for lending money over three, five and 10 years have risen in the past few weeks.
Ulster Bank economist Simon Barry said long-term interest rates in the wholesale market had risen from the lows they hit in mid-May.
The money markets were now indicating it was less likely the ECB would cut rates again. The next move in ECB rates was likely to be up, the market was indicating.
But Mr Barry added it was still not known when exactly ECB rates would rise.
Brokers
AIB told mortgage brokers yesterday it was increasing the rates for homeowners who now opted for a three-year fixed mortgage from 3.1pc to 3.19pc. Its five-year fixed mortgage goes up from 3.69pc to 3.86pc, with the 10-year rate rising from 4.41pc to 4.65pc.
Despite the rises, AIB still has the lowest rates for three, five and 10-year fixed rates. But mortgage experts said other banks and building societies were now set to raise their fixed rates.
"The cost of borrowing among banks has been increasing and this will create pressure on what banks charge their customers," Frank Conway of the Irish Mortgage Corporation said.
Mr Conway said that the announcement by AIB was not a surprise considering how low interest rates have been for the past number of months and recent pressure on the rates banks charge each other for loans.
He said that, despite the increases to the AIB fixed rate loans, the new rates were still among the best in the market.
"For homeowners who are weighing up their options, now is as good a time as any to fix. Fixed rates make excellent budgeting tools and will insulate borrowers against future mortgage repayment increases."
Fixed rates available to homeowners on the Irish market are at historical lows, but they are now likely to rise for all lenders.
This is ahead of any move by the European Central Bank to raise rates. In the past eight months, the ECB has slashed its main rate seven times.
But ahead of any move by the ECB to increase its rates, the cost of wholesale lending, or the interest rate banks charge each other, for three-year fixed loans has jumped from 2pc in mid-May to 2.4pc at the moment, Mr Barry said.
- Charlie Weston Personal Finance Editor
