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Increase in AIB's mortgage interest rates takes effect today

The 0.4 per cent increase in the standard variable rate, from 4.0 to 4.4pc, had been announced in late April.

Image: Julien Behal/PA Archive

Updated, 14:50

AROUND 170,000 IRISH households will face higher mortgage repayments from today, as AIB increases its variable interest rates.

The bank will increase its residential standard variable rate from 4.0 to 4.4 per cent, while buy-to-let variable rates go from 4.95 to 5.35 per cent.

The increase, announced in late April but only taking effect from today, will add almost €46 to the monthly repayment for a 30-year mortgage with €250,000 outstanding.

AIB head of products Fergus Murphy said AIB had the lowest variable rate in the market before the increase, which was “an unsustainable position” for the bank.

“While any increases are regrettable, AIB simply cannot continue to provide mortgages on a loss-making basis,” he said.

The increase was announced just before the ECB lowered its key interest rate by 0.25 per cent – a decision which meant a near-immediate decrease in interest rates for tracker mortgage holders, whose repayments on a similar mortgage would fall by around €28.70 per month.

Many analysts believe the continued fall in tracker mortgage interest rates means banks are required to bear heavy losses on those loans – losses which must be made up through increases in other mortgages.

Finance minister Michael Noonan last month said the country’s banks – including those which, like AIB, are almost entirely State-owned – had to be allowed to make independent commercial decisions.

He said AIB – which, along with its EBS subsidiary, has received €20.7 billion in taxpayer aid – needed to return to profitability so that the taxpayer could recoup the cash it had invested.

He also argued that while Irish banks were previously reliant on ECB funding, which would have become cheaper as a result of the rate cut, they were not funded through other means – meaning the cost of borrowing from the ECB was less of a factor in the banks’ profitability.

AIB’s Deputy Chairman Michael Somers, however, has said he is generally uncomfortable with banks deciding not to pass on an ECB rate reduction to variable rate customers.

Letter to AIB: ‘Why I am closing my current account’

Read: Gilmore says AIB mortgage hike is “a commercial decision”

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Gavan Reilly

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