AIB cuts fixed-term mortgage offer after ECB rate reduction earlier this month

Industry brokers previously predicted that banks operating in the Republic would be as slow to pass on cuts as they were to pass on interest rate hikes. Picture Denis Minihane.

AIB announced plans to cut its four-year fixed mortgage rate product by 0.25% following a decision by the European Central Bank (ECB) to reduce interest rates.

The lender said the rate reduction will be available to new and existing customers from early July and will be applicable for mortgages of €250,000 or more.

The change means the monthly repayment on a new €300,000 AIB four-year fixed rate mortgage, with a loan to value of 50-80% over a 25 year term will be €1,598. The previous monthly repayment would have been €1,639.97, representing a saving of €41.65 per month, or just under €500 in annual terms.

The change to AIB’s fixed-rate product comes as many customers are coming off their old contracts and seeking new agreements in a high interest rate environment and the lender looks to swell its loan book in a more competitive environment.

The ECB reduced rates for the first time in two years earlier in June after increasing them for the first time from 0% in July 2022 in a campaign to drive down stubborn inflation.

The European regulator announced a 0.25% reduction to its main lending rate which now stands at 4.25%.

Tracker mortgage customers, who are directly vulnerable to interest rate changes, got some financial relief from the ECB rate cut but 429,000 Irish households who have fixed-rate mortgage loans are at the mercy of banks and how quickly they pass on any reductions.

Industry brokers previously predicted that banks operating in the Republic would be as slow to pass on cuts as they were to pass on interest rate hikes.

AIB passed on a 1.7% interest rate increase while the ECB reached its peak rate of 4.50%.

Banks, including AIB, posted bumper profits as a result of high interest rates. These profits are expected to take a hit as at least one more ECB rate reduction is priced in by the market this year and further cuts are predicted in 2025.

Banks may now be looking to snap up more customers as a result, especially as fresh competition, Spanish financial service provider Bankinter, which operates Avant Money, enters the market.