Boost for homeowners as more banks cut rates

THE cost of home loans has fallen sharply after two of the country's biggest mortgage lenders cut their variable rate.

Bank of Ireland and First Active yesterday cut rates by 0.5%. The move will reduce payments on a €200,000 loan by 54 a month.

This brings to three the number of banks which have cut their rates in response to last week's rate cut by the European Central Bank. IIB Homeloans cut its rate by 0.5% last Thursday.

ECB chief economist Otmar Issing said there was a possibility of future rate reductions as there was still room for manoeuvre. He said the US and Japanese Central Banks still had room to move and "no-one can say that the ECB has already shot its bolt".

As one of the country's largest providers of new mortgages, Bank of Ireland's variable mortgage interest rate now stands at 4.24% (4.3% APR).

The rate cut will take effect for new business customers immediately and for existing customers from January 1, 2003.

First Active's cut takes effect from the start of business next Monday. Its new rate will also be 4.24%.

Last month, the average cost of a new house passed the €200,000 mark. Nationally, house prices rose by 1.3% in October, climbing by 10.4% in the 12 months to October.

The average price of a house in Dublin is €262,000. The average price of a house outside the capital is €85,000 cheaper, at €176,600.

Despite fears that banks would not pass on the full rate cut to customers following the €100m levy imposed on institutions in the Budget, Bank of Ireland Mortgages marketing manager, Olive Moran, said there had never been a better time to take out a mortgage. This rate reduction will represent a significant benefit to both homeowners and first-time buyers and will go a long way to improving mortgage affordability," Ms Moran said.

"Interest rates are at an all-time low and the outlook is that they will remain low, in the medium term at least," she added.