Sunday 18 March 2018

Pressure to cut variable rates set to focus on Bank of Ireland

Michael Noonan
Michael Noonan
Charlie Weston

Charlie Weston

Bank of Ireland and Permanent TSB will come under more pressure than other lenders to cut their variable rates when banks are hauled before Finance Minister Michael Noonan.

Both banks recently cut their variable rates - but only for new customers, leaving existing mortgage holders paying some of the highest rates in the market. Mr Noonan is due to meet with the chief executives of six banks between today and Thursday.

First in is AIB's David Duffy, whose bank is due to pass on cuts of between 0.25pc and 0.38pc from next month. The bank, which includes EBS, has around 140,000 customers on variable rates.

A report carried out at Mr Noonan's request by the Central Bank looks at each bank individually and sets out its variable rate compared with the rest of the market, its cost of funds and whether or not it recently cut its rates in line with European Central Bank rate cuts.


Bank of Ireland is set to come out badly from this report, and is likely to reduce its rate by no more than 0.25pc in a bid to dampen the controversy, according to people familiar with the situation.

Banking analysts predict lenders will cut rates by 0.25pc, but will fund this with more reductions in deposit rates.

Eamonn Hughes of Goodbody Stockbrokers noted: "Our forecasts for the banks contain one standard variable-rate reduction, though the impact on profitability has been offset by continued declines in funding costs for the banks."

At the start of this year Bank of Ireland reduced its variable for new customers and switchers only. Yesterday, the bank sought to emphasise that its fixed rates were good value.

Some 300,000 people on variable rates are paying among the highest mortgage interest rates in the eurozone. The gap between variables here and in the rest of the eurozone is around 2pc. This means a family with a €200,000 mortgage is paying around €300 a month more than in other eurozone countries.

A 0.25pc cut in the variable mortgage rate would save a family with a 25-year €300,000 mortgage just €42 a month.

Irish Independent

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