AIB is introducing rate increases across all mortgage types for the first time since the European Central Bank (ECB) began its rate-hiking cycle last July, affecting hundreds of thousands of borrowers.
n a boost to savers the bank is also lifting rates it pays on deposits.
The move comes just hours after the ECB announced its latest rate rise of 0.5pc today, bringing the total increase in rates since last summer to 3pc.
AIB said it will raise rates by an average of 0.5pc across all tracker and fixed mortgage products, with new fixed prices effective from tomorrow. Fixed and tracker mortgage rates for customers of the bank’s Haven brand will also go up.
Now a five-year fixed rate mortgage will cost 4.3pc a year, while variable rates are going up 0.35pc from March 14, meaning a variable rate mortgage with an 80pc loan-to-value ratio will have a 3.5pc rate.
The quick action by AIB is a sign that Irish banks are starting to pass on the full cost of higher base rates to mortgage customers after largely holding back.
“The timing of this announcement by AIB of an average increase of 0.5pc is unexpected as it is the third increase from the Bank in five months,” said Michael Dowling, managing director of Dowling Financial.
“It is significant also as this is the first “pillar” bank to increase its variable as well as its fixed rates.”
AIB, Bank of Ireland and Permanent TSB have spared their variable rate customers up to now, despite the ECB having raised rates four times in the six months to December, and have only passed through some of the hikes to fixed products.
However, AIB is making the changes amid an improving economic outlook of declining inflation, low unemployment and improving growth indicators.
Now a 5 year fixed rate mortgage will cost 4.3pc a year, while variable rates are going up 0.35pc from March 14, meaning a variable rate mortgage with an 80pc loan-to-value ratio will have a 3.5pc rate.
The changes put AIB’s prices above Bank of Ireland, which has been slower to increase its mortgage rates in a bid to take market share.
But bank shareholders have been agitating for higher prices as the average rate being charged in the Irish market was among the lowest in Europe, after many years of having been the most expensive.
Irish banks, however, have been able to book significant gains in net interest income nonetheless by parking excess deposits with the ECB and earning a fat margin over the small amounts they pay Irish savers in interest.
Bank of Ireland was ultimately forced to push up its fixed rate prices in January in response.
The improvement in top line income led both AIB and Bank of Ireland to increase their medium-term profitability forecasts at the end of 2022.
Now AIB is also sweetening terms for savers, who will be getting more attractive deposit rates across a range of the banks variable products from mid-month.
In a major boost for online savers, AIB is increasing the amount it pays from 0.1pc to 1pc on regular monthly savings up to €1,000 a month.
Seven-day notices accounts will now attract 0.25pc interest instead of zero, while demand deposits will pay 0.1pc per annum.
AIB had held deposit rates at near zero for years while ECB deposit rates were negative, a policy that cost the bank millions annually.
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