AIB rate hike to hit tens of thousands

Some 70,000 AIB mortgage-holders are facing an average extra annual bill of close to €300 after the bank raises its interest rates from the start of June. AIB said today it was adding 0.4 percentage points to its standard variable mortgage rate, and raising the variable rates at subsidiary EBS and its broker-led arm Haven by 0.25 percentage points.

Customers holding AIB’s newer “loan to value” mortgages, which succeeded standard variable loans, will see a 0.25 percentage point increase, while loan to value mortgage-holders at EBS will face a 0.1 percentage point rise. At Haven, rates will rise by 0.25 percentage points for variable rate loans and by 0.2 percentage points for loan to value products.

The bank said it did not expect to introduce further increases in its variable rates this year, but noted that this was based on current funding costs. It said the latest hikes would bring its rates “in line” with other pricing in the market. AIB’s standard variable rate was the lowest in the market before this increase but, at 4.4 per cent,it will stand around the average.

It is thought the bank has roughly 70,000 customers holding standard variable rate loans, while several thousand more are due to be affected by the EBS and Haven increases.

AIB’s average variable rate mortgage is around €130,000, a level that would attract a monthly repayment increase of about €24, or €288 annually. For the average variable mortgage of €100,000 at EBS, the increase will lead to an extra monthly repayment of about €17. AIB standard variable customers absorbed a total increase of one percentage point in their mortgage rates in 2012.

“The decision to raise variable rates is driven by the need to ensure the bank is lending at long-term sustainable pricing levels,” AIB said in a statement. It added that the bank’s variable rates had been at “unsustainable levels relative to the cost of funding” for a number of years, while EBS has not announced an increase in almost two years.

It also said that the group’s cost of funding was driven in part by deposit pricing, which has been “decoupled” from the ECB base rate. This ECB rate is expected by some to be cut next week, leading to savings for holders of tracker loans.

The move will not affect customers holding fixed or tracker rates but it will hit buy-to-let investors.

The AIB rate hike will kick in from June 5th, while the EBS and Haven increases will take effect on June 1st.