Friday 23 August 2019

Bank shakes up mortgage market with fixed-rate cut

Colin Hunt
Colin Hunt
Charlie Weston

Charlie Weston

The largest mortgage lender in the State is set to shock the market with cuts to its fixed rates.

Most commentators and rival banks had predicted the end of mortgage rate reductions. But AIB is to buck the trend by reducing its one, two, three, four, five and seven-year rates, and introduce a new 10-year rate.

Rates are coming down by up to 0.45pc, in what is one of the largest cuts in years.

There are also reductions to fixed rates at its broker-focused Haven offering.

It comes after analysts said the next move in home loan rates would be up, while Bank of Ireland got in trouble with the State's competition watchdog last week for saying it expected fixed rates to rise across the market.

Most new buyers are opting for fixed rates.

AIB had been seen as offering less attractive fixed rates than its competitors, but the latest move will position it to take on its rivals.

The new rates apply to new and existing customers.

With a fixed rate, the interest rate and monthly repayments are fixed for a set time.

AIB is reducing its three-year rate from 3.20pc to 2.85pc, which is in line with the best offers in the market.

Its five-year rate is coming down by 0.45pc to 2.85pc also. And the new 10-year fixed rate is being offered at 3.3pc.

The new rates come into effect from tomorrow.

Mortgage broker Karl Deeter said AIB would have the cheapest seven and 10-year rates. Haven will have the same fixed rates for one to five years, but no seven or 10-year offerings.

A homeowner with a €300,000 mortgage, on a variable rate of 4pc, would save €200 a month by switching from their lender and opting for the new AIB two-year fixed rate. Over a year, this works out at a saving of €2,400.

The bank already offers the lowest variable rate at 3.15pc, and has lower variables for new buyers with a large deposit or existing owners with equity built up in their homes, so-called LTV (loan-to-value) rates.

New AIB chief executive Dr Colin Hunt commented: "As the mortgage market leader we are offering value and choice by introducing highly competitive fixed rate pricing, to complement our lowest variable offering in the market."

Mortgage rates have fallen in this market over the last five years, but are still the second highest in the eurozone.

The expectation up to now was that the next movement in rates would be upwards.

In a recent report, Goodbody's Eamonn Hughes said rates were "fairly priced and won't drop any time soon".

And Bank of Ireland was warned by the Competition and Consumer Protection Commission it may have engaged in price signalling when it called time on mortgage rate cuts.

Its chief financial officer Andrew Keating said recently it was his expectation "the price of mortgages, particularly those longer-duration mortgages, will increase".

Irish Independent

Also in Business