Banks bow to pressure and cut mortgage rates

THE main financial institutions, including AIB and Bank of Ireland, have finally reacted to pressure from politicians, businesses and customers by dropping their mortgage interest rates.

All the main lenders have now cut their variable mortgage rates, although AIB and First Active confirmed yesterday they were not passing on the full 0.5% cut made by the European Central Bank (ECB) last Thursday.

AIB announced it was reducing its variable mortgage rate by just 0.38%, while First Active is restricting the reduction in its standard variable rate for new customers to 0.46%.

Yesterday, Bank of Ireland, Ulster Bank and EBS all followed the earlier example of other lending institutions, including IIB Homeloans, Permanent TSB, National Irish Bank, Bank of Scotland and ACC, by passing on the full interest rate cut to its customers.

The Taoiseach Bertie Ahern had said financial institutions had a moral obligation to drop their interest rates.

However, the banks were still criticised yesterday over their treatment of small business customers who are being charged up to 5% more for loans than mortgage holders.

Irish Small and Medium Enterprises (ISME) claimed the banks continue to treat small business customers in contempt by refusing to pass on the ECB reduction for lending and overdrafts.

“Interest rate policy favours investment in bricks and mortar rather than wealth and job creation,” said ISME chief executive Mark Fielding.

Even though interest rates had fallen by 2.75% in the past three years, he said the cost of borrowing for business still remained exorbitantly high.

ISME wants the Government to maintain pressure on the banks, to pass on the full ECB reduction to business customers because of the difficult trading climate.

Last night, AIB managing director Donal Forde defended the bank’s variable mortgage cut of 0.38% on the basis that AIB still offered the cheapest mortgage on the market.