AIB increases variable rate by 0.5%

Thousands of AIB customers with an average-sized home loan will see their annual repayments increase by over €1,000 after the bank announced a sharp increase to its Standard Variable Rate (SVR) mortgages this morning.

Around 70,000 AIB customers will be forced to contend with significantly higher mortgage repayments from early September after the bank announced plans to increase its SVRs by half a percentage point.

Owner-occupiers will see their SVR mortgages increase from 3 per cent to 3.5 per cent, while the bank’s variable rates for investors will jump from 3.95 per cent to 4.45 per cent.

For every quarter of a point rate increase, the monthly cost of servicing a €100,000 mortgage goes up by about €15, meaning an AIB SVR customer with an outstanding loan of €300,000 will see monthly increases of €90 from September 3rd..

Around 20 per cent of AIB’s mortgage customers will be affected by the move.

The State-controlled bank defended the sharp increase by stressing the despite the rate hike it still offers the lowest SVRs in the Irish market. It said the average SVR in the Irish market, when it is excluded, is 4.3 per cent. The average SVR in the UK is 4.1 per cent.

The bank insisted this morning that it remained committed to the Irish mortgage market, but said it could only continue to operate  if it was getting an “appropriate economic return”.

It said  its current pricing levels were “uneconomic" relative to the bank’s cost of funds. "As previously indicated, AIB’s mortgage portfolios, including the SVR portfolio, are loss making," it said.

Earlier this month, the European Central Bank (ECB) cut its interest rates by a quarter of a percentage point to 0.75 per cent, a new record low. It was the third rate decrease announced by the bank since late last year.