AIB has hiked the interest rates it charges its fixed-rate mortgage customers for a second time since the European Central Bank started increasing its official rates this summer, and other mortgage lenders are tipped to follow suit in the coming weeks.
The increase of 0.5% for new fixed rate borrowers will effectively apply after Christmas because new mortgage borrowers can avail of the existing rates by January 16, AIB said.
The latest increase will lift the interest rate of a mortgage fixed for up to two years for a typical first-time buyer, who is taking out a loan for up to 80% of the value of the property, to 4.15%.
It marks the second round of rate increases by AIB for fixed-rate customers since the ECB started hiking in July, and other banks will likely respond in time, senior mortgage expert Michael Dowling said.
“At first the main banks didn’t react to the ECB apart from AIB in raising fixed rates immediately, but now we are seeing the cycle of interest rate increases being passed on,” Mr Dowling said.
He expects Bank of Ireland to announced hikes to its fixed rates again before Christmas, and for Permanent TSB to do likewise but just after Christmas.
An increase of 0.5% for a €300,000 on a 30-year mortgage adds €82 a month to the service costs of a loan, Mr Dowling said.
The ECB is widely tipped to raise official rates again next month, by at least 0.5%. It has increased rates by 2% since first starting out on its campaign to fight inflation this summer.
Households on tracker mortgages immediately see their interest rates rise in line with ECB increases.
The main Irish banks had held back somewhat in passing on rate increases for fixed-rate and variable-rate customers, but they appear to be now catching up.
Irish mortgage interest rates are among the highest charged across the eurozone.