Banks urged to follow AIB and reduce mortage rates

Major lenders have been urged to reduce their mortgage interest rates, after one of the country’s largest banks dropped its borrowing costs for homeowners.

AIB’s decision to reduce interest on its standard variable rate home loans by 0.25% was welcomed Friday by Finance Minister Michael Noonan.

The move also led to calls for other lenders to follow the lead and assist mortgage owners on their books.

In a third drop over the last year, the AIB cut means that a borrower with a €200,000 mortgage should save €27 a month or €325 a year. Over 156,000 customers with AIB, EBS, and Haven are expected to benefit from the reduction, which comes into effect on October 1.

The changes mean that the standard variable rate for AIB customers will come down to 3.65%. EBS customers will also see their rates lowered to 3.70% and Haven will see theirs reduced to 4.72%.

Finance Minister Michael Noonan welcomed the reduction for new and existing customers.

“This is the third such rate cut that the bank has implemented and will be of significant benefit to large numbers of the bank’s customers,” he said.

However, Fianna Fáil finance spokesman Michael McGrath said that other lenders should be forced to follow AIB’s lead.

Singling out Bank of Ireland in particular, he said that lender must reduce its “ridiculous” interest rates.

“Bank of Ireland has stuck rigidly with an indefensible and unjustifiable variable rate of 4.5%,” he said.

Mr McGrath said existing variable rate customers at the bank have not seen any benefit in terms of reduced monthly payments despite “the overwhelming evidence that they are being ripped off”.

“The Minister for Finance’s efforts to date have failed and he has been effectively snubbed by Bank of Ireland despite the State’s 14% shareholding in the bank,” he added.

The TD said Bank of Ireland was, instead of reducing its standard variable rate, trying “to force” existing customers to lock into a two-year fixed rate.

Earlier this year, Taoiseach Enda Kenny said that it was not acceptable that bailed-out banks refuse to cut mortgage payments.

There are around 300,000 home-owners in Ireland on standard variable rate mortgages, paying about double the interest of similar house loans across Europe.