Belfast Telegraph

Saturday 20 September 2014

AIB hikes mortgage rates after bailout

Ireland's biggest bank will respond to its latest bailout by raising mortgage rates by a further 1.5% this year.

Allied Irish Banks (AIB) is preparing to hit customers with three more interest hikes, on top of the 0.5% rise confirmed yesterday, before the end of the year.

The revelation comes as AIB and other crisis-hit lenders prepare to be bailed out by a further €16bn in the biggest overhaul of the Republic’s banking sector.

By this evening almost all of the banking sector will be under state control. Permanent TSB will be the only bank not to get a bailout.

Irish Finance Minister Brian Lenihan will today signal the Irish Government's intention to take a majority stake in AIB, as details of the National Asset Management Agency (NAMA) are released.

For the first time, the public will learn how much the banks' toxic loans are actually worth.

Discounts on these loans will range from 35% to 60%. That means NAMA will pay the banks up to 60% less than they value the loans themselves. But in a surprise move, the Irish Government will put money into Anglo Irish Bank and Irish Nationwide by using IOUs, investing the money over a 10-year period. It will commit to a certain amount and then pay by instalment as necessary.

Taxpayers rescuing the banks will be hit twice as lenders pass on interest rate hikes to customers.

In survival plans presented |to the European Commission, both AIB and Bank of Ireland confirmed they planned to push through at least three more mortgage rate hikes.

AIB yesterday hit existing mortgage holders with interest rises just hours ahead of the expected announcement of the nationalisation of the bank and its latest bailout. Bank of Ireland is now expected to push up its standard variable rates for existing customers by 0.5% within a fortnight.

This is set to be followed by EBS Building Society hitting existing standard variable rate (SVR) customers with higher rates.

AIB is also hiking its fixed rates from the start of business today. The bank had the lowest fixed and variable rate mortgages before the rises. AIB would not comment on the viability plan it gave to the EU Commission, saying the document was “confidential”.

However, it is understood the bank has promised to push up standard, variable and fixed rates by 1.5% by the end of the year in a bid to return to profitability.

The changes will have no impact on those who have tracker mortgages and those on existing fixed-rate deals. AIB last night insisted it took the decision itself to hike its mortgage rates, just days ahead of an expected partial nationalisation of the bank.

A Department of Finance spokeswoman denied Mr Lenihan wanted the rise out of the way ahead of the State moving to take a majority stake in the bank, in a bid to avoid opposition claims that Irish taxpayers were being punished twice.

Bank of Ireland, when asked when it was hiking its standard variable rates, would only confirm it was monitoring its rates on a daily basis. Ulster Bank, EBS and National Irish Bank said they have no immediate plans to hike SVRs. Irish Nationwide Building Society did not return calls.

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