AIB today announced it will increase its residential mortgage rates with effect from close of business, on Tuesday, August 10, 2010.  The bank's standard variable rate will rise to 3.25% from 2.75%.

Bank of Ireland will also raise its standard variable mortgage rate by 45 basis points to 3.49% on Tuesday.

Michael Quirke, Head of Mortgage Products, AIB Bank said:  “Funding availability on wholesale money markets for Irish financial institutions remains difficult. Unfortunately, we have little choice but to introduce this pricing change, which is a measured response to the significant challenges which must be overcome if we are to achieve an economic return on our loan book and thereby return to a sustainable business model. All mortgage lenders are facing the same issues in this funding environment. While the cost of mortgage finance is increasing, AIB continues to offer competitive options for borrowers.  AIB is committed to supporting the mortgage market, in particular first time buyers and home movers.”

The European Mortgage Federation says 85.7% of mortgage borrowers in Ireland have variable-rate mortgages - - either a tracker linked to the benchmark rate of the European Central Bank or a standard variable rate (SVR).

The  half percentage-point increase in the variable rate means repayments will increase by about €27 a month for every €100,000 borrowed over a 30-year term.

The new pricing structure is attached and is summarised as follows: 

Owner Occupiers:

• Loan to Value (LTV) Variable Rates up 0.50%
• Standard Variable Rate up 0.50%
• Fixed rates are increasing for new business
• Existing Tracker Rates will remain unchanged
• Existing Fixed Rate contracts are unaffected

Buy to Let

• Existing Tracker and Standard Variable Rates remain unchanged
• Existing Fixed Rate contracts are unaffected
• Fixed rates are increasing for new business