AIB's mortgage rate cut puts fresh pressure on rival lenders
The pressure on banks to cut their variable rates has been ramped up after Fianna Fáil resubmitted a bill to the Dáil which would give powers to the Central Bank to enforce cuts in rates.
The move comes after AIB said it was reducing its variable rate for the fourth time in July.
It is also offering €2,000 for professional fees in a bid to lure in switchers. The bank has the lowest variable rate.
But AIB said the new lower rates applied only to AIB customers. No reduction was announced for mortgage holders at EBS and Haven which it also owns. That means about 80,000 customers will miss out on the latest decrease.
Fianna Fáil's Michael McGrath has handed in a bill to the Ceann Comhairle of the Dáil to give regulators powers to direct lenders to reduce their rates.
The bill would mean that Central Bank Governor Philip Lane would have to assess the mortgage market.
If it was proved that market failure was the reason why variable rates were so high, then Prof Lane would have the power to set a variable rate or cap the rate that can be charged.
Brendan Burgess, founder of the Fair Mortgage Rates Campaign, said the Government would find it impossible to vote against the Michael McGrath bill.
He asked: "Will Minister for Transport Shane Ross vote against such a bill, given his statements on overcharging on mortgages in the past?"
The new Government has identified cutting mortgage rates as one of its key priorities.
State-owned AIB has said its variable rate will come down by 0.25pc from the start of July.
The latest cut in its variable rate will see it come down to 3.4pc for residential customers, both new and existing ones. This will mean annual savings of €320 for someone with a €200,000 mortgage to be paid back over 25 years.
Loan-to-value rates, where the bank imposes a lower interest rate based on the homeowner's equity in the property, have come down by 0.25pc also.
Some 76,000 mortgage account holders will benefit from the new lower-variable rate.
KBC Bank also announced a reduction in its loan-to-value rates for new customers and lower fixed rates for new and existing mortgage holders.
Finance Minister Michael Noonan said he did not expect all lenders to cut their rates.
"Well, the model we're aiming at is a competitive model, so we don't want a situation where everybody moves together.
"We want to get the banks competing with each other, both on variable rates and on fixed rates, and on the various offers which they make."
Mr Noonan said the government had constant meetings with the banks "and we keep constant pressure on them".