AIB ‘will cut home loans’ twice more this year

AIB will cut its standard variable mortgage rate twice more this year, to below 3%, and while Permanent TSB will cut in the coming weeks, Bank of Ireland will hold firm against “political pressures”, Investec Ireland has predicted.

In a major update on Irish banks, analysts John Cronin and Cian Harty assess plans after the election for a new mortgage arrears regime and pressures on lenders to cut mortgage rates.

The analysts say the Programme for Government struck between Fine Gael and the Independent Alliance grouping of TDs is “essentially a wishlist” which could lead to lenders being pushed towards agreeing “more generous” debt-forgiveness deals with distressed home loan borrowers.

“We believe that the latest developments in the Irish banking sector in terms of the proposals contained within the Programme for Government and subsequent rate developments have potentially materially adverse consequences for the Irish banking sector,” the analysts say in the 24- page report.

Bank of Ireland management “has shown its strength in resisting pressures”, which means the lender will likely not cut its variable mortgage rates for existing borrowers anytime soon.

Nonetheless, Investec trimmed its net interest margin, a key gauge of profitability, for Bank of Ireland and reduced its price target for its shares to 34c from a previous target of 36c.

Bank of Ireland shares rose 1c to 27c yesterday.

On AIB, the analysts predict the bank, in two announcements this year, will lower its standard variable mortgage rate to below 3%.

The first AIB announcement will be effective from October 1 and will be followed by a second cut effective from January 1, they forecast.

Permanent TSB will be the next lender to announce some sort of home-loan cut, they said.

“However, we expect that the cut to the standard variable rate specifically will be the only cut to that rate that is announced this year,” it said, saying Permanent TSB would keep under review its so-called managed variable rate and fixed rates for new lenders.

On Government plans for a new approach to mortgage arrears, Investec said it wasn’t making new forecasts on loan provisions at the banks.