Bank of Ireland has confirmed it has lowered the interest rate for customers who have moved to split mortgages.

Customers will now be charged 2.5% on the warehoused portion of the loan.

During Oireachtas hearings last month, it emerged that the bank charged interest on the full mortgage amount, unlike other banks like Permanent TSB and AIB.

The bank had said it had to remain profitable.

But Bank of Ireland today confirmed that interest for the warehoused portion would be at 2.5%, the rate the bank currently borrows funds.

In a statement, the bank said: "Arising from the bank's recent meeting with the Oireachtas Committee we undertook to consider our approach on the interest charges on split mortgages".

"We noted that the vast majority of owner-occupied customers in arrears were on tracker mortgages and that the tracker terms and conditions would be adhered to for co-operating customers availing of a forbearance option from Bank of Ireland," it added.

The statement said that the current average tracker pay rate to the bank is below the current all in cost of money to the bank.

"Following consideration we have made a decision that for default owner-occupier customers on a non-tracker variable rate the split mortgage rate for the warehoused portion will be fixed at 2.5% per annum for a period of three years, assessed on a case-by-case basis; 2.5% being the rate at which the bank can currently borrow three year unsecured funds in the market," the bank added.

The Chairman of the Oireachtas Finance Committee has welcomed the initiative, but said the bank must go further in finding long-term solutions for those in mortgage arrears.

Speaking on RTÉ’s News At One, TD Ciarán Lynch said the bank had not gone far enough, and he wanted to see concessionary mortgage arrangements used at Bank of Ireland, similar to the approach being used by Ulster Bank.

Such a move would see reductions in the overall interest rate on the payment, which results in lower monthly payments while ensuring all of the capital is paid within the life of the mortgage term.

Mr Lynch said consistency between the banks was needed in dealing with the arrears crisis.