Tuesday 27 September 2016

Why not pass on interest rate reduction now?

Published 23/04/2015 | 02:30

Labour Party Conference Galway University. Minister Joan Burton speaks to the conference. Picture; GERRY MOONEY. 14/4/12
Labour Party Conference Galway University. Minister Joan Burton speaks to the conference. Picture; GERRY MOONEY. 14/4/12

AIB boss David Duffy indicated yesterday that the bank is likely to cut the interest it charges on standard variable rate (SVR) mortgages within months.

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It is welcome news. The Irish Independent has argued long and hard that borrowers with SVR loans have been unfairly squeezed by all of the main banks.

Failing any market shocks, around 140,000 AIB customers can expect a rate cut of around 0.25pc probably from the middle of the year.

When it happens it will be the result of huge popular pressure on the issue, including from this newspaper and Fianna Fáil's Michael McGrath.

AIB is operated at arms length, but in reality once Government figures including Taoiseach Enda Kenny and Joan Burton were prodded into taking a position on mortgage rates, the State owned bank was always going to act.

AIB's rates are not the highest in the market, but the bank has more SVR customers than any lender, making it a big part of the current problem.

But pre-announcing a rate cut begs the question, why not simply pass on the reduction now?

David Duffy says the bank has to proceed with caution, but for a typical customer the difference between a rate cut in April versus June can easily add up to €1,000.

AIB, along with all of the main banks, is enjoying extraordinarily low borrowing costs - whether that's from the European Central Bank, bond markets or savers who are receiving a pittance on deposits.

So financially, the bank is in a position to reduce its rates now, but customers, including taxpayers who bailed out AIB, are not yet seeing the benefits and that is simply not fair.

Irish Independent

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