Real Estate Alliance

Real Estate Alliance welcomes the announcement by AIB to slash rates

Real Estate Alliance, the national property group comprised of some of the country’s longest established estate agents has welcomed Mondays announcement by AIB to slash their homeloan rates to match the current ECB rate of 3.5%. 

The new rate which is around 2 percentage points lower than the next nearest competitor is available to first time buyers and is fixed for 12 months. “This announcement by AIB is a recognition that interest rates are on a continuing downward cycle and offers an incredible deal to first time buyers”, according to Healy Hynes, director of Real Estate Alliance.  

The cut, equivalent to 4 ECB rate moves, further increases the affordability of housing which has been gathering pace throughout 2008.  The cost of a €230,000 mortgage over 30 years under this scheme is now just €1,032 a month – before mortgage interest relief, over €300 a month less than the next nearest competitor.  

According to the AIB statement, they will lose money with this offer, however Euribor rates have continued the downward trend started in October and as of time of writing stand at their lowest level in 18 months.  From a high of 5.4% for 3 month funds they now stand at just over 4% - a 35% improvement in 6 weeks.

This easing of the cost of funds on the interbank lending market is an indication that the measures taken to support the banking industry are taking hold and credit between the banks is becoming more liquid.

Access to funds is the lifeblood of every business and by inference every person in Ireland is affected by these rates.  In addition, since the effective removal of tracker mortgages from the portfolio of most banks, these Euribor rates now have a direct bearing on the cost of mortgages for incoming or refinancing homeowners.

In short, Irish banks have seen in the last 6 weeks a massive improvement in their ability to access funds on the interbank marketplace and the more ECB rate cuts in 2009, AIB will most likely not be losing money on this for long.

The freeing up of funds is the last major stumbling block to providing the floor that the economy needs.  Although bank share prices have dropped as of late and many investors have seen the value of their portfolio impacted as a result, banks are in the business of lending and by doing this, they will benefit themselves at the same time.

This rate move by AIB may well be in response to the forthcoming Home Choice Loan scheme being launched by the government in 2009.  The scheme, aimed at first timer buyers buying new homes, and only intended to be available for 6 – 12 months was designed to enable buyers, having difficulty raising finance from other financial institutions to go to the same source guaranteeing the banks.

The reaction to the government backed scheme so far has been strong with 2,600 people visting the website and 162 registering an interest in the first 3 days alone.  “It’s obvious from this response that AIB anticipate a massive uptake on this scheme, meaning that they could lose out on a large percentage of the mortgage market that will be taken up in 2009. 

“A recent speech by Michael Finneran estimated that there are 30,000 completed homes ready for occupation throughout Ireland at the moment.” Said Mr. Hynes  “This represents a estimated loan book value of €8bn and a total income of over €13bn over 30 years to the banks – even at ECB rates.  And even though the funds currently made available to the Home Choice Loan Scheme do not amount to this much, the large uptake anticipated in the scheme would reflect very badly on the banks.

“As it is unlikely that large-scale residential development will restart before 2010 – 2011 this represents a huge amount of revenue for the banks over a long period of time which they can ill afford to lose out on.”  Mr. Hynes continued.

With banks man marking each other in the marketplace, Mr. Hynes expects other financial institutions to follow suit in coming weeks.  He did however raise a note of caution on the matter.  “It is yet to be seen if this offer is simply a PR exercise to deflect the negative attention the banks have been getting as of late regarding their lending policies and restriction of credit.  It’s all fine and well saying you have this package on offer, however if nobody can gain access to it then it’s less than useless and will instead drive more first time buyers to the Home Choice Loan Scheme.”  The proof of this pudding will be in the eating and we can only hope it tastes as good as it looks.

Healy Hynes is a director of Hynes Real Estate Alliance, Athlone (090 6473838) and a board member of national property group Real Estate Alliance. www.realestatealliance.ie

NOTE TO EDITORS

Real Estate Alliance is a strategic marketing alliance comprising some of the country�s best-established auctioneers and estate agents. Our key focus is on locally-owned and established estate agents. With one quarter of the alliance�s firms in business for more than a century, and with an existing IAVI president & five IAVI past presidents among the group�s members, the alliance is characterised by the established strength of its membership. In addition, membership is only open to firms led by members of the Irish Auctioneers & Valuers Institute or the Society of Chartered Surveyors.

Clients of REA members benefit from:

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