AIB set to increase interest rates

AIB is to hike its mortgage interest rates from today, with some rising by up to 0.5 per cent, the bank said today.

AIB is to hike its mortgage interest rates from today, with some rising by up to 0.5 per cent, the bank said today.

The changes will come into effect from close of business and will see rates for both owner occupiers and buy-to-let mortgages rise.

For those living in their properties with a standard variable rate mortgage the interest rate will rise 0.5 per cent, while loan to value (LTV) variable rate mortgages will go up 0.34 per cent. The fixed rates being offered by the bank will also rise tomorrow. Existing tracker rates will remain unchanged.

The interest rate increase will mean repayments on an average €300,000 mortgage over 30 years will increase by €77.64 a month.

For investors, fixed rates will rise, but tracker and standard variable rates will stay the same.

About 64 per cent of AIB's mortgage book is made up owner-occupiers. Of these, 60 per cent of these are on tracker mortgages with 30 per cent are on standard variable rates and 10 per cent on fixed.

AIB's Maurice Crowley said the bank understood financial pressures faced by existing and prospective home owners, and said it would try to keep rate increases to a minimum.

"The cost of money in the retail and wholesale markets continues to remain high. We have experienced an era of historically low rates but, like all businesses, AIB is now dealing with the reality of the significantly increased cost of raw material," he said. "Unfortunately, in such circumstances, it is neither sustainable nor prudent for the bank to continue to provide mortgage finance at below the cost of funds so rate increases are necessary."

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Earlier this month, AIB reported a pretax loss of €3.5 billion for its Irish operations in 2009 and an overall pretax loss of €2.65 billion for the year, its first full-year loss.

Operating profits, before provisions for the fiscal year, were up from €2.7 billion to €3 billion, including a gain of €623 million from the capital exchange offering completed last June with a further €159 million coming from an amendment to retirement benefits.

Meanwhile, AIB staff agreed earlier this month to take a cuts of up to 20 per cent in their pensions in a bid to cut the scheme’s deficit, with defined benefit scheme members agreeing to contribute 4 per cent of their salaries to the scheme from April 1st this year.

Permanent TSB raised its rates 0.5 per cent from February 1st, affecting up to 80,000 mortgage holders and prompting fears other banks were likely to follow suit despite the European Central Bank holding rates steady.