Bank of Ireland and IIB Homeloans have rushed to be the first to cut interest rates in response to the reduction in European Central Bank rates.Bank of Ireland's depositors will bear the brunt of the rate cut, while the burden on borrowers will be only fractionally eased.
From March 12th, the Republic's second biggest bank, will reduce the variable rate of interest paid to its 80,000 special savings incentive account (SSIA) holders by a full 0.25 of a percentage point, in line with the cut in European Central Bank rates. This will bring the rate of interest down from 2.75 per cent to 2.5 per cent.
Some 240,000 of the bank's SSIA customers hold accounts with either a fixed rate of interest or are invested in the equity markets.
At the same time borrowers with mortgages, overdrafts and personal loans, will not benefit from the full extent of the cut in ECB rates.
Bank of Ireland has said it will reduce its standard variable mortgage rate from 4.24 per cent to 4.1 per cent, a drop of 0.14 of a percentage point, which is well short of the 0.25 of a percentage point fall announced by the ECB.
The discounted variable rate, which applies to new mortgage customers, has been more generously pared back, falling from 3.44 per cent to 3.25, a cut of 0.19 of a percentage point.
More expensive loans, such as overdrafts, will be reduced by just 0.15 of a percentage point from 11.9 per cent to 11.75 per cent.
At these levels Bank of Ireland is charging customers 9.25 per cent more than the key ECB rate of 2.5 per cent, yet it did not pass on the full 0.25 percentage point reduction.
A spokesman said the bank always sought to strike a balance between all of its customers when reducing rates.
"We fully passed on the last two rate cuts whereas others didn't".
IIB Homeloans has opted to reduce its standard variable mortgage rate by the full 0.25 of a percentage point from 4.2 per cent to 3.95 per cent. This will result in savings of about €14 a month on a €100,000 mortgage for IIB customers and will apply from April 2nd.
At 4.10 per cent Bank of Ireland's reduced mortgage rate is still higher than IIB's and ahead of the existing rate offered by AIB and Bank of Scotland.
These institutions are continuing to monitor their interest rates but will almost certainly move even lower as a result of yesterday's rate cut.
One mortgage broker has recommended that borrowers should simply maintain their monthly repayments at current levels and take the opportunity to reduce the long-term cost of their loan.
Simply Mortgages suggested that by paying a bit extra every month, an individual with a €150,000 mortgage over 25 years could save €10,500 in interest payments and cut more than a year off the term of the loan.
