The other banks and the building societies are now set to follow Irish Permanent and reduce their home loan rates, after the State's biggest mortgage lender yesterday responded to Bank of Scotland's recent arrival into the market.
The reduction signals the start of a period of falling interest rates as financial institutions here cut their rates towards European norms.
Irish Permanent has cut its standard variable home loan rate by half a percentage point. The new standard rate is now 4.75 per cent, resulting in savings for over 50,000 customers. The large cut means Irish Permanent is the cheapest of the domestic lenders, with the 4.75 per cent pitched just below EBS's current 4.85 per cent.
However, it is still significantly above the 3.99 per cent on offer through the Bank of Scotland. Thus home loan rates of the main lenders will remain under downward pressure.
According to Irish Permanent chief executive Mr Billy Kane, the bank is moving towards the EU norm of mortgage rates around 4.5 per cent. "We have a very competitive offering but we will review it. We are a large company and we have a large market share and we will do whatever we have to, to protect it."
Mr Martin Walsh, head of lending at EBS, said the society would maintain its position as the leader in long-term value. EBS traditionally waits up to two weeks, before it makes a move on changing interest rates, preferring to see where the other lenders will settle. Other institutions are likely to make an announcement next week.
A spokesman for ACC confirmed that the bank was anxious to remain in the mid-price range and if that changed, it would too.
The Ulster Bank said the situation was being reviewed, while AIB said it reviewed prices in the context of what was happening in the marketplace.
Irish Permanent's cut means a borrower with a £60,000 mortgage over 20 years will save £16.20 a month, with a repayment of £387.60. Over the last 12 months savings on £50,000 loans have mounted to £79.68 a month.
The new rates will take effect next Friday for new borrowers and October 1st for existing customers.
According to Mr Kane, the cut which will cost Irish Permanent £11 million off its margin, was planned many months ago. He added that Bank of Scotland's arrival brought the plans forward slightly.
Mr Derek Maguire of Irish Mortgage Corporation, which is the first broker to sell the Bank of Scotland's loans, said it was marvellous that Irish Permanent had responded so quickly to the Bank of Scotland's announcement and that everyone would now benefit from the bank's entry into the market.
He added that Bank of Scotland would be rolling out a full range of its other products into the Irish market over three to six months and that flexible loans as well as fixed rates and other services would be available.