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AIB to consider mortgage rate cut

Published 22/04/2015

AIB shares to go on London Stock Exchange
AIB shares to go on London Stock Exchange

Allied Irish Bank will consider a cut in mortgage rates within the coming weeks if costs continue to drop as they have throughout this year, the lender's chief executive David Duffy has said.

Before a parliamentary watchdog, Mr Duffy defended the state-owned bank's interest rates on standard variable mortgages, which are around double what homeowners across Europe have to pay.

He told TDs and Senators that home loans in Ireland are riskier than overseas and the lender had extra costs because of its high arrears and below-par credit rating on the international money markets.

But under mounting political and public pressure to cut repayments alongside record-low European interest rates, Mr Duffy said if current trends continue the bank will consider a mortgage rate cut within two months.

"If we see that trend over the next couple of months continue towards our half financial year, we will then consider making a further rate cut," he said.

"But it will be based on those variables, which are cost of funding, cost of running the bank and our risk operating cost at the end of the day.

"If all of those costs come down as they have in the past then we would be willing to consider another rate cut in the next couple of months."

Pressure has been mounting on Ireland's banks over recent months to slash standard variable mortgage rates.

Irish homeowners are being forced to pay around double the interest of similar home loans across Europe, heaping thousands of euro more on annual bills.

New mortgage customers are also being offered lower rates than existing borrowers.

Taoiseach Enda Kenny has said the Government is not happy that mortgage rates are higher than the eurozone average.

There are around 300,000 homeowners in Ireland on standard variable rate mortgages.

Almost half of these are AIB customers.

Mr Duffy told the Oireachtas committee on finance, public expenditure and reform that the lender would make a decision on possible mortgage rate cuts based on forecasts in its half-year results, expected in June.

"The progress we are seeing today is positive so we would look forward those two months (and) if we see the same positive progress we would then be in a position to further cut the rates," he said.

Pressed on whether he was reasonably optimistic about a cut, he said no bank chief executive in the world is ever optimistic.

"But I do believe that if we see the trends continue then we will be in a position to do something," he added.

Last year, AIB cut its variable rates by up to 0.25%.

Independent TD Stephen Donnelly said mortgage rates had risen significantly since October 2012, despite all costs linked to interest having significantly fallen.

Mark Bourke, AIB's chief financial officer, accepted that the main reason for rising rates was shareholders.

"Yes it is down to not eroding shareholder funds or having an unsustainable bank," he said.

Michael McGrath, Fianna Fail finance spokesman, called for a "significant" rate cut by AIB and other lenders.

"The fact that the average interest rate on new mortgages in the euro area is 2.09% compared to a rate of well over 4% in Ireland underlines the extent to which banks are ripping off their variable rate customers," he said.

"This must not be allowed to continue."

Mr McGrath said Bank of Ireland and Permanent TSB also needed to slash their "ridiculously high" 4.5% standard variable rate.

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