Update: CEO of the Irish Brokers Association Ciaran Phelan said the AIB cut was welcome, but still very high by European standards.
He said: "While every cut in rates for consumers is a welcome one, you have to question whether it’s enough - AIB's new standard variable rate (SVR) of 3.4% is very competitive by Irish market standards - but is still hugely expensive by EU standards."
He said it appears the lower rates only apply to AIB mortgage customers, and not to customers of their subsidiaries Haven & EBS.
"We would hope that they have similar plans to introduce these cuts to these customers in the near future," he said, adding the organisation also hoped other lenders would lower their rates.
Meanwhile, KBC Bank Ireland has announced it will introduce new variable rates for new mortgage customers as well as reducing its fixed rates for new and existing customers effective from next Tuesday, May 17.
Tens of thousands of home owners have been handed a little respite after one of the country's biggest mortgage lenders cut its rates.
Finance Minister Michael Noonan said Allied Irish Bank's 0.25% reduction was a mark of the increasing competition among banks.
The revised rates kick in on July 1 for new and existing customers and are worth about €320 to someone who borrowed €200,000 over 25 years.
"I welcome the move by AIB today to reduce mortgage interest rates again for new and existing customers," he said.
"Today's move is illustrative of the increasingly competitive mortgage market we now have in Ireland, which is a priority for this Government and this latest move along with the previous rate reductions from AIB benefits approximately 76,000 mortgage accounts leading to very significant annual savings for households across the country."
AIB, which is 99% owned by the State and being lined up for a partial sell-off this year or next, said its standard variable rate would now be 3.4% and its new loan-to-value variable rates would start from 3.1%.
About 76,000 mortgage holders will benefit to some degree from the new rates.
The bank said it was its fourth reduction in 18 months and it has offered customers combined savings of €1,300 in a year.
Robert Mulhall, AIB's managing director of retail, business and corporate banking, said: "When we started reducing rates in late 2014 we committed that as AIB's financial performance and funding conditions continued to improve, we would keep key rates under review.
"We are now in a position to pass on a further rate reduction to our customers."
He added: "Our mortgage offerings will continue to evolve and we will be introducing more new features across our other brands over the coming months to further benefit customers and to give them the choices they are looking for.
AIB is also offering €2,000 for professional fees for customers switching to it.
Mr Noonan also urged people to shop around for better deals.
I further welcome the bank's initiative to stimulate activity in the switcher market and I urge mortgage customers to continue to shop around to avail of the best rate."
AIB said the new rates would be worth €306 a year on a €200,000 mortgage over 20 years; €320 for the 25-year loan; €333 for the 30-year loan; and €345 for the 35-year mortgage.