AIB HAS increased its mortgage interest rates, stating it was no longer sustainable for the bank to continue losing money on loans.
The increases include a 0.5 percentage point rise in its standard variable rate, which increases from 2.25 per cent to 2.75 per cent. The bank also tightened the amount of money it will lend to borrowers with an annual income of less than €40,000.
Minister for Finance Brian Lenihan said last night that AIB’s decision to increase its variable interest rates for mortgages illustrated why the National Assets Management Agency (Nama) was needed.
Mr Lenihan said the increase had been well-signalled and, even with the rise, interest rates would still be lower than those in the UK.
“It reflects the cost of funding for AIB and it’s yet another example of why we have to put our banks into the right shape. And that’s what tomorrow’s announcement is about,” he said.
“I would point out that . . . English mortgage rates are substantially in excess of ours,” he added.
Opposition parties condemned the move as opportunistic and cynical. Fine Gael deputy finance spokesman Kieran O’Donnell said AIB was “thumbing its nose to hard-pressed mortgage holders and taxpayers”.
He said the bank had a “nerve to impose the increase”, after he said it had “stonewalled” during the recapitalisation negotiations. The Minister should reveal when he became aware the increase would be imposed, he added.
Labour Party TD Ciaran Lynch also portrayed the move as cynical, and contended that there seemed to be choreography between the Government and AIB.
The bank’s move was described as a “double whammy” for taxpayers by the Professional Insurance Brokers Association (Piba), which said mortgage holders were already paying for the Government’s bailout of the banks.
“The risk is that the banks will feel confident enough to become even more aggressive about the way they treat mortgage holders and businesses. This could be catastrophic for the economy and ironically, for the banks themselves,” said Piba’s director of mortgage services, Rachel Doyle.
Irish Brokers Association chief executive Ciarán Phelan said AIB appeared “intent on ensuring that its mortgage customers pay for the mistakes of management”. He warned that competition in the mortgage market was drying up.
The interest rates on the bank’s range of loan-to-value mortgages will rise by 0.34 percentage points, while its fixed rates have increased by 0.24-0.46 points. The standard variable rate for buy-to-let customers remained unchanged at 4.2 per cent.
The higher rates came into effect from close of business yesterday.
The bank’s move follows a 0.5 point increase in Permanent TSB’s standard variable rate last month, which came on top of an earlier half-point hike last summer. Further rate increases in the mortgage market are expected, as the banks seek to unravel years of competitive rate-slashing and to recover their margins.
“The cost of money in the retail and wholesale markets continues to remain high,” said Maurice Crowley, general manager of product management at AIB.
The rate hikes came ahead of today’s expected Government announcement on ownership of the bank, in which the State may take a majority stake – possibly more than 70 per cent.
Figures from the Irish Mortgage Corporation suggest the monthly repayments on a €300,000 loan over a 30-year term on AIB’s standard variable rate will rise from €1,147 to €1,225, an increase of €78 per month. The repayments on a €200,000 loan with a 30-year term will increase from €764 to €816, an increase of €52 per month.
