AIB relents and passes on cut in interest rate to homeowners
ALLIED Irish Banks cut its variable mortgage rate in a surprise move last night, despite being told by Finance Minister Michael Noonan that a reduction was not necessary.
The bank reduced the variable rate to 3pc from 3.25pc. The rate was already the lowest variable rate in the country.
The move is a boost for thousands of homeowners and will mean repayments on a 25-year €300,000 mortgage will drop by around €44 a month.
The move by AIB comes just a day after it and senior executives from Bank of Ireland and Ulster Bank rebuffed attempts by the Government to force it to pass on the recent 0.25pc European Central Bank (ECB) interest rate cut.
Permanent TSB, KBC Bank, Irish Nationwide, EBS and Bank of Scotland have already passed on last week's cut. The pressure is now sure to increase on BoI and Ulster to follow suit.
Earlier, Mr Noonan had conceded that AIB, which is almost completely owned by the State, did not need to cut the rate because it had shielded borrowers from previous European Central Bank interest rate hikes.
"I suppose they had a reasonable case where they weren't passing on the reduction because they hadn't passed on two one-quarter increases. The others are different," Mr Noonan said before AIB's surprise decision.
Financial Regulator Matthew Elderfield has, meanwhile, been told to demand new laws from the Government that would force lenders to reduce sky-high mortgage rates.
The focus should be on getting the lenders that charge the highest variable rates to reduce them, Michael Dowling of the Independent Mortgage Advisers Federation said.
Permanent TSB has the highest variable rate in the market at 5.44pc despite passing on last week's ECB rate cut to its variable customers.
A family with a €200,000 variable rate with Permanent TSB will still have monthly repayments of €1,111 once the new lower variable rate kicks in on November 21. If the family had a tracker at 1pc above the ECB rate, the monthly repayments would be €760.
Mr Elderfield spent yesterday considering whether or not to ask the Government to change the law to allow him to influence the variable rates banks charge.
A spokesman said: "We can confirm there has been contact with the Taoiseach's office and the Central Bank is currently preparing a response."
Banks are obliged by contract to pass on any ECB rate changes to those with tracker mortgages, but have discretion on what rate they charge on variable mortgages.
Ulster Bank has the second highest at 4.95pc. EBS has agreed to pass on last week's eurozone rate cut, but its variable rate is the third highest at 4.68pc. The variable rate charged by BoI is close to 4pc.
Last night, National Irish Bank said it was going ahead with a rise of almost 1pc on some of its variable rates with effect from today.
It stressed its cost of funds was not related to the ECB rate.