Banks to cut interest rates for variable mortgages from July

Central Bank warns measures could have a detrimental effect

Homeowners with standard variable mortgages (SVR) look set to benefit from reduced interest rates from July.

Minister for Finance Michael Noonan said he had met with the country's main six lenders - AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC - to discuss "the comparatively high standard variable rates currently being charged by the banks".

Mr Noonan said there was agreement from all lenders that customers should have access to more competitive mortgage products .

At a press conference outside Government Buildings today, Mr Noonan said he has given the six banks until July 1st to make their announcements as to how they will reduce the cost of standard rate variable mortgages for customers. “All of them in one way or another will offer an option to each holder of a mortgage to get a reduced rate,” he said.


In some cases, this will involve a straight rate cut but in others it might involve offering a lower fixed-rate to a customer. “We’ll expect announcements from the banks in their own time between now and the first of July.”

Mr Noonan also wants the banks to conduct publicity campaigns to inform customers of their options in securing a lower rate.

He suggested that interest rates are probably at the bottom of the cycle currently and that borrowers should seriously consider fixing with their bank.

Mr Noonan said there was a “growing belief” that the margin being charged by banks for standard variable rate mortgages was “too wide and that there is scope for a reduction”. He said the banks were “expected to make moves” but he was “not prescriptive” about the rates that should be charged.

The minister said he also “reminded” the banks that Senator Feargal Quinn’s bill to give powers to the Central Bank of Ireland to fix interest rates has now been published in the Senate and that the Government does not have a majority in the Seanad.

The minister said there are potential competition issues arising from the six banks all moving at the same time to offer lower rates to customers and he doesn’t want them all to make the same cuts. “I want them to compete with each other across a range of products,” he said.

Mr Noonan warned that a “severe, penal” bank levy in the Budget could be introduced if the banks don’t reduce their rates. He would also consider giving the Central Bank powers to fix rate. He said neither option was “particularly good” and he would prefer the banks to move on rates themselves.

“As long as they move we won’t have to take further action,” the minister said, adding that it was in the interest of all the banks to “look after their customers”.

The minister said another rate cut by AIB, in addition to the two it has pushed through in the past six months, should not affect its profitability or damage the prospects of the State selling some of its 99.8 per cent stake to private investors.

“Happy customers make for profitable banks,” he said. “I don’t see any change in our intention or our policies about selling AIB.”

In terms of the timing of a possible IPO, he said the first window would be late this year, “probably November…then a window will open up again in the Spring”.

Central Bank warning

The move comes as the Central Bank warned that measures to force banks to lower variable rates could have a detrimental effect on banks.

It said in a report published on Friday that while the spread between official ECB rates and the standard variable rates was high compared to that offered by other European banks, a number of factors were contributing to this. These factors include credit risk, profitability and competition issues.

“While higher than necessary lending rates do tend to act as a drag on the economic recovery, policy steps to interfere with the rates charged risk creating damaging side-effects,” the Central Bank said.

“Such measures would also damage the long-term prospects of the banks. Their boards and management need to recognise that charging spreads that excessively exploit the current weak competitive environment risks being counterproductive if they bring down upon themselves Government policy reactions,” it added.

Some 300,000 people are on standard variable mortgages and while AIB recently announced its second rate cut in six months with reductions rangingfrom 0.25 per cent to 0.38 per cent, other lenders have shown a reluctance to follow suit.

KBC Ireland, Bank of Ireland and Ulster Bank have all recently ruled out cutting their variable rates.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times

Charlie Taylor

Charlie Taylor

Charlie Taylor is a former Irish Times business journalist