The decision by Allied Irish Bank to increase the cost of its standard variable rate mortgages by .5 of a percent (50 basis points) plus not pass on the latest quarter point ECB rate cut is financial madness.
In a unique period in Irish history, where more and more families are already under severe financial pressure, the move defies common sense. Consumer sentiment, consumer spending and average household income have all taken a severe beating in recent years resulting is less disposable income for a majority of families. Many households now have less than €100 per month to live on once essential bills are paid.
The AIB decision even goes against the rate making decisions of the ECB, who have been cutting interest rates in order to boost economic activity in the Euro area. The base rate of lending was reduced to below 1% for the first time in ECB history earlier this summer when it was reduced by a further 25 basis points.
Finally, the AIB move will have a negative impact on arrears for the bank. Already, a record number of mortgage holders in Ireland are in arrears (over 90 days late) and more will now find their ability to pay their AIB mortgages under even more pressure as a direct result of the latest move.
This is financial madness.