Bank rates and heating bills both facing hikes

A double consumer price blow is on the cards this autumn as the prices of banking and home heating are set to rise.

Yesterday both AIB and Bord Gáis announced their intention to hike charges.

AIB will increase the standard variable rate (SVR) on its mortgages by 0.5%. Market analysts have predicted further increases.

Meanwhile, Bord Gáis has asked for a sanction to raise the price of domestic gas by 7.5% coming into the winter months.

Its proposal to the Commission for Energy Regulation blamed higher wholesale prices and the weakness of the euro for its request. The commission will consider the option and, if it permits the move, the increase will take effect from October.

Bord Gáis said supply prices, and not internal pressures, led to its request.

The news came on the day AIB hit its variable rate mortgage customers with news that it was raising its rates, despite recent moves by the ECB to cut its rate.

Stockbrokers said this was likely to signal a move towards even higher rates from AIB.

“AIB will gradually have to increase the interest rate on its products if it is return to profitability and start lending again,” said Goodbody Stockbroker analyst Eamon Hughes.

Chief executive Donal Duffy said AIB’s cost of funding was in excess of 3%, “so if we sell a product at 3% then it would be making a loss”.

From the autumn AIB will charge 3.5% on its SVR residential mortgage, which is still the lowest in themarket, Mr Duffy said. The market average for SVR residential mortgages is 4.1%.

AIB also announced it will close 67 branches in the Republic.

Mr Duffy said communities which are losing their outlet will not be left in the lurch. “Every single location where we are closing a sub-office or branch we are creating the same level of service in the post office in that same location,” he said.

Finance trade union IBOA said the announcement of the closures had been “traumatic” for the 340 bank officials who work in them and who face redundancy or relocation.

“What we are witnessing at the present time is the piecemeal dismantling of Ireland’s banking infrastructure,” said IBOA general secretary Larry Broderick.

“Our major banks are taking decisions based on their own narrow institutional interest rather than any wider public interest, which could result in large areas of the country becoming banking no-go areas as far as any physical presence is concerned. Far from being ‘over-banked’, we could soon arrive at a position where many towns around Ireland have an ATM and little else.”