AIB raises home loan rate

AIB has followed the Irish Permanent in increasing its home loan rates.

AIB's standard variable mortgage rate is being increased by half a percentage point to 7.85 per cent.

Lending rates in general are also being increased by half a point, however, business term loan rates are being increased by a quarter of a percentage point.

Deposit rates are being increased by between a quarter and a half point.

A £40,000 mortgage from AIB will now cost £336 a month, from £323.60 while an £80,000 loan will increase from £647.20 to £672 a month.

Most other lenders are expected to move over the coming days. The Central Bank has made it very clear to the market that it is keen to see a half point rise in mortgage rates, although it has stepped into the interest rate markets to keep the rises in check.

Some analysts believe that pressure may build for another rate rise over the coming weeks.

According to Mr Dominic Sutton, economist at Gandon Capital Markets, the next month is particularly dangerous.

"The new UK economic policy statement, the French and possibly Irish elections, the Amsterdam Summit and the next meeting of the US Federal Reserve all have the possibility of upsetting markets," he noted.

Mr Jim Power, chief economist at Bank of Ireland, also believes that there are risks over the coming weeks. However, he added, the longer term prognosis is "benign".

According to Mr Power there is a distinct risk that the international markets will test the downside of the pound again over the coming weeks.

This would put renewed pressure on the interest rate markets as speculators borrowed to "short" their positions.