AIB set to cut rates of 140,000 mortgages

Almost 140,000 AIB variable mortgage holders look set to get a cut in their interest rates by the summer.

AIB set to cut rates of 140,000 mortgages

Chief executive David Duffy said the rates cut would depend on the funding costs for the bank, as he also denied attempts are under way to “fatten the bank up for sale”.

His comments came after weeks of sustained pressure for a rates cut and complaints that the State-owned bank is charging sky-high levels compared to other lenders in the eurozone.

A number of factors influenced how the bank set its rates, Mr Duffy told the Oireachtas Finance Committee, including the cost of sourcing funds, the bank’s income, and operating costs.

AIB’s variable rate of 4.15% is at odds with new mortgage rates in the eurozone, where some are as low at 2%. The difference is costing families here on variable mortgages thousands of euro extra a year.

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He said if costs continue to come down for the bank then it would make a rates cut in the coming months. Pressed by TDs, Mr Duffy later said the cut could be within the next month or two.

AIB has more than 135,000 variable rate mortgages on its books.

Mr Duffy said the bank wanted to examine its half-year results before acting on a cut, adding: “If the variables comes down, we will be able to pass a cut on in the next month or two.

“I do believe that if we see trends continue that we will be able to do something.”

The development follows suggestions at the weekend that the Government was considering increasing the annual charge it levies on banks if they do not move to cut rates.

Welcoming the potential variable rate cuts, Fianna Fáil finance spokesman Michael McGrath said: “AIB’s cost of funds at the end of last year was 1.57% and has almost certainly fallen further since then and the bank is earning massive margins on variable mortgages.”

Fine Gael TD Kieran O’Donnell pressed Mr Duffy on why the bank could not cut its variable rate immediately, given the €1.25bn it had raised last year.

Mr Duffy said the bank needed to consider all factors and a further rate cut would only come if the bank stayed in profitability.

Sinn Féin TD Peadar Tóibín questioned whether the bank was just building its funds to “fatten it up for a sale”. Mr Duffy denied that was the case.

He said AIB was on a “journey to profitability” to make sure taxpayers never had to pay into the bank again. He also insisted the Government, the 99% shareholder in the bank, had not ordered it or interfered with any commercial transactions.

He denied suggestions that the “sole driver” of the variable rate was to increase overall funding for the bank.

Bank officials yesterday claimed they could not say what the impact of lower tracker mortgages were on the variable rate for AIB customers. There was “no crossover” between the two rates, TDs were told.

The move to cut variable rates comes after Coalition figures recently said it was unacceptable that lower costs were not passed onto borrowers.

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