More lenders to follow as AIB hikes mortgage rate

Charlie Weston Personal Finance Editor

August 10 2010 04:44 AM

TWO more mortgage lenders are expected to hike interest rates after loss-making AIB said yesterday it was pushing up its standard variable mortgage rates from today.

AIB will raise its standard variable and loan-to-value variable rates by 0.5pc from the close of business today, in a move that will add €27 to the monthly repayments on every €100,000 borrowed.

Around 50,000 people will be affected by the hike in the variable rates.

It is the second time this year that AIB has put up standard variable rates. The combined hikes have added €50 to the monthly repayments for every €100,000 borrowed.

The bank, which last week confirmed that it lost €2bn in the first half of the year, is also increasing the cost of taking out a fixed-rate mortgage.

This means that customers who want to fix at the old rates have just hours to arrange it with the bank.

The three-year fixed rate is going up by 0.24pc to 3.89pc from 4pm today.

But anyone who comes into their branch before that time with a letter signed by themselves and anyone else who is party to the mortgage, and specifying the period they want to fix for, will be able to book that rate, a bank spokesman said.

KBC Bank and Irish Nationwide are expected to follow AIB, Bank of Ireland, ICS, EBS and Haven in increasing standard variable rates for a second time this year.

'Measured'

Permanent TSB recently imposed its third rise since last summer in standard variable rates.

Almost 300,000 homeowners have standard variable rates, making them vulnerable to rate rises.

Lenders can increase variable rates whenever they want to, unlike tracker rates which can only rise when the European Central Bank (ECB) rate increases.

AIB said last week it was unlikely to impose any further rate rise this year, unless the ECB raises its rate.

The head of mortgages with the bank, Michael Quirke, defended the hike, arguing that it was a "measured response" to the challenges facing the bank and was necessary to ensure the bank achieves an economic return on its mortgage book.

Some 60pc of AIB's mortgage holders have trackers, which are set at a fixed percentage at about the ECB rate. Banks are losing money on trackers as the cost of funds has increased since they were introduced.

Mortgage broker body, the Professional Insurance Brokers' Association (PIAB), said the latest AIB rise follows a similar variable rate hike in March and a rise of 0.69pc in fixed rates.

Rachel Doyle of PIBA said: "Although flagged it will be a bitter pill to swallow for hard- pressed mortgage holders."

She said the move also comes in the wake of more strict criteria imposed by AIB for mortgage applicants and a decision by the bank not to accept mortgage switchers.

Irish Mortgage Brokers operations manager Karl Deeter said the fact that AIB had only increased its five-year fixed rate by 0.14pc to 4.39pc meant it was encouraging homeowners to take up this option.