AIB hikes popular fixed-rate mortgage to 5%

New borrowers face paying much more for their fixed-rate home loans immediately, while existing customers will face significantly higher monthly repayments when their fixed-rate loans come up for refinancing.

AIB has raised the cost of a fixed-rate mortgage popular with first-time buyers to 5%, adding €125 to monthly repayments, and rivals are also likely to hike their fixed-rate mortgages. 

The increases come as Irish lenders start out on the cycle of raising their fixed-rate mortgages following official rate hikes by the European Central Bank since last summer. 

The ECB is widely expected to increase official rates again when it meets next month that will likely lead to a further round of interest rate rises by Irish lenders. 

New borrowers face paying much more for their fixed-rate home loans immediately, while existing customers will face significantly higher monthly repayments when their fixed-rate loans come up for refinancing.    

AIB unveiled increases in all its fixed and variable-rate mortgages, including the five-year and three-year rates that are the most popular with first-time buyers for loans of over 80% of the value of the property.   

The increase in the five-year fixed mortgage to 5% from 4.3% will add €125 to the monthly cost of a €300,000 home loan.  

AIB also said it raised its three-year fixed-rate mortgage to 4.8% from 4.2%. 

The group said that apart from green home loans that it had hiked mortgage rates for all its AIB, EBS, and Haven customers.  

Price increases

Mortgage experts have warned that 71,600 Irish customers who are coming off their fixed rates this year will face significantly higher costs in paying their home loans.

And they say that 171,000 customers on tracker mortgages will more than likely face more increases, with the ECB widely expected to continue on its campaign of increasing official rates in its fight against inflation. 

New eurozone-wide inflation figures provided little hope that the ECB would pause the rate-hike campaign in July. German annual consumer prices, harmonised to compare with other EU countries, rose by a higher-than-anticipated 6.8% in June, even as inflation fell sharply in Spain to 1.6%, and to 6.7% in Italy. 

In Ireland, the harmonised inflation rate fell to 4.8% in June from 5.4% in the previous month.  

What's your view on this issue?

You can tell us here

"The June figures in Germany only interrupt the downward trend in the inflation rate and do not mark its end," said Ralph Solveen, senior economist at Commerzbank. The data from Germany, the eurozone's biggest economy, comes as the ECB is still looking for evidence that underlying inflation has turned a corner.

Germany's core inflation rate, which excludes volatile items such as food and energy, is expected to be at 5.8% in June, up from 5.4% in May. Economists expect a decline in headline inflation over the summer, as energy and food inflation soften.

However, the core rate will probably remain significantly above the ECB target of 2% for an extended period of time, Commerzbank's Mr Solveen said. 

"The ECB will not change its tightening stance until core inflation shows clear signs of a turning point and will continue hiking until then," said Carsten Brzeski, global head of macro at ING.

 Additional reporting Reuters