Homeowners face mortgage bill hike as AIB ups rates

THOUSANDS of homeowners will be hit with an average hike of around €52 a month on their mortgage bill following a decision by AIB to increase interest rates.

One in three of the bank’s customers will be affected by the move to increase standard variable rates (SVR) by 0.5% from today. It is increasing fixed rates by up to 0.69% for new customers but those with an existing fixed rate will not be affected.

The move will mean an extra monthly payment of €77.98 for a person on a €300,000 new mortgage rate of 2.75%. The homeowner will pay an extra €935.76 a year for the mortgage or €28,072 more over the lifetime of a 30-year loan.

For a €200,000 mortgage the monthly increase will be almost €52.

Director of the Irish Mortgage Corporation, Frank Conway said the announcement does not come as a surprise.

“For some time, all lenders have been sending out the message that their cost base was too low and that mortgage costs would have to increase.

“The timing of the announcement is also not unexpected as the NAMA process gets under way and the bank finally feels it has the freedom to act.”

AIB is following the lead set by Permanent TSB which hiked rates by 0.5% in February. Other banks are expected to follow shortly by hiking rates.

“Increases in mortgage repayments will bring an unwelcome additional burden on already stretched household finances,” said Mr Conway.

Fine Gael deputy finance spokesman Kieran O’Donnell said this was a cynical move by AIB on the eve of “Bailout Tuesday”.

“While stone-wallingon the recapitalisationnegotiations, the bank has the nerve today to impose a 0.5% increase in mortgage rates.

“We need to know when Minister for Finance Brian Lenihan became aware of this increase and what his attitude is towards it.”

AIB said it will make “every effort” to keep rate increases to a minimum because it understands the financial pressures faced by many home owners.

General manager of product management with AIB, Maurice Crowley, said: “The cost of money in the retail and wholesale markets continues to remain high. We have experienced an era of historically low rates but, like all businesses, AIB is now dealing with the reality of the significantly increased cost of raw material.

“Unfortunately, in such circumstances, it is neither sustainable nor prudent for the bank to continue to provide mortgage finance at below the cost of funds so rate increases are necessary,” he said.

Chief executive of the Irish Brokers Association, Ciaran Phelan said: “There’s absolutely no need to simply fleece mortgage customers in this manner – financial institutions in need of capital should first look to reduce their huge overheads before tapping their customers.”

The Professional Insurance Brokers Association said banks should not be allowed to operate as “independent republics with no consideration for the impact of their behaviour on society and the economy”.