AIB admits ‘rapid’ rate rises create risk of a new spike in mortgage arrears

AIB chief executive Colin Hunt said his bank was not seeing any big spike in arrears levels yet but he admitted that this may change.

Dr Hunt’s comments to the Oireachtas Finance Committee came after AIB raised the cost of its five-year fixed-rate mortgage to 5pc in late June.

Tracker mortgage customers across all the lenders have seen their lending rates rise 10 times since last summer.

The AIB boss told the TDs and senators: “While close to 60pc of our mortgage customers are currently on fixed rates, we know that rapid increases in interest rates make loan repayments more challenging for many mortgage customers.

“Thus far, thankfully, we have not seen any material increase in potential or actual arrears but are aware that this situation may change and keep it under constant review.”

AIB, Bank of Ireland and Permanent TSB were hauled before the committee to justify increased mortgage and what politicians said had been a reluctance to increase deposit rates up until recently.

Dr Hunt said close to 60pc of AIB mortgage customers are on fixed rates.

He added: “We know that rapid increases in interest rates make loan repayments more challenging for many mortgage customers,” Hunt will tell TDs and Senators.

European Central Bank President Christine Lagarde suggested this week that ECB rates will remain high until inflation slows further.

She ruled out any cut to interest rates in the short term.

Permanent TSB chief executive Eamonn Crowley told the committee that the European rate rises have led to a situation where fixed rates and variable rates are now similar.

“This tends to influence customer behaviour, as many customers re-evaluate the relative attractiveness of fixed rates compared to variable, and vice versa,” Mr Crowley said.

“Some will decide, for example, that opting for a variable rate, even if it is higher than a fixed rate, gives them the possibility of benefiting from a fall in rates in the future.

“By contrast, others will favour the certainty that a fixed rate can offer. They may choose to forego the possibility of gaining from future falls in interest rates, as being protected from the risk of rates going up is more important to them.”

Bank of Ireland group chief executive Myles O’Grady his bank is trying to ensure customers are not overburdened by rate rises.

“While the ECB has increased rates by 4.5 per cent, we have increased fixed-rates by up to 1.75 per cent,” Mr O’Grady said.

“We’ve balanced this by introducing savings rates of up to 3pc.”

Around seven out of 10 of the lender’s mortgages in Ireland are fixed with the majority of these not due to re-price until 2025, according to O’Grady, with the remainder of Bank of Ireland’s mortgage book being tracker and variable rate loans.

“We’re very aware that some customers may get into financial difficulty and this is something we are closely monitoring,” Mr O’Grady said.

Chief executive of the Banking and Payments Federation Ireland, Brian Hayes, claimed that lenders in Ireland have taken a “balanced approach” in passing on the impact of interest rates over the past 14 months.

“While much has been made of the rate at which banks have passed on deposit rates for savers, this must be looked at side by side with the fact that banks in Ireland have also been considerably slower than their European peers in passing on interest rates to mortgage holders,” Mr Hayes said.

“When comparing the pass through of rates across the 20 eurozone member states, banks here have passed through the second lowest increase in mortgage interest rates between May 2022 and July 2023,” he said.

The average rate on new mortgages in Ireland has risen by just 1.24 percentage points, or less than a third of recent ECB increases, Mr Hayes said.