Bailed out bank AIB is piling the pressure on home owners by raising its standard variable mortgage rate by 0.5% despite the ECB rate being cut to a historic low.
It will mean an extra €90 a month for householders with mortages of €300,000.
Banks usually react to interest rate changes at the ECB where they are usually changed in steps of 0.25%, so a 5% hike is being seen as a bold move by AIB.
Bank of Ireland customers will also suffer a rise – it has decided to increase its rate by 0.25% adding around €45 a month to a €300,000 mortgage bill.
AIB’s new rate is being introduced on September 3 and will affect around 70,000 customers currently on the variable rate of 3%.
AIB chief executive David Duffy defended the move, claiming the bank was still cheaper than its rivals with the lowest variable mortgage rate.
Figures show that 34,000 of AIB’s customers have had their mortgages re-arranged, according to the bank’s first half results.
Duffy said it had no option but to increase the variable rate, despite the ECB’s decision this month to reduce the base rate to a historic 0.75%, because its mortgage pricing was unsustainable.
“As previously indicated, AIB’s mortgage portfolio, including the standard variable rate portfolio, are loss-making,” it said in a statement.
Only Ulster Bank, Permanent TSB, and Halifax/Bank of Scotland have passed on the latest ECB cut to variable customers although Ulster and PTSB have the highest variable rates.
EBS, now run by AIB, customers will also be affected by the bank’s policy. It is refusing the pass on the ECB cut to its customers. It has now one of the highest rates at 4.33%.
Bank of Ireland’s variable rate will go up to 3.8pc.