AIB has upped the ante in a battle among the banks for first-time buyers, who are being told it is now much cheaper to buy than rent.

The rate on AIB’s one-year fixed rate for owner occupiers has been cut to a market leading 2.40%, just below that of Bank of Ireland.

A e200,000, 30-year mortgage will now cost e780 a month. When the mortgage interest relief of e99 in years one and two for first-time buyer couples is deducted, the payment would be e681.

According to the latest Daft.ie rent review the average rent nationally is e885. It said rent for a three-bed house in Munster is e765, while the same property in Dublin 6 would be e1,890 per month.

Director of the Irish Mortgage Corporation Frank Conway said: "With interest rates going so low, the cost of buying can now be significantly less than renting.

"On a number of Dublin properties, it can be anywhere up to 25% or 30% less to buy a property than to rent it, when the full value of mortgage interest relief is factored in. Property prices have also been slashed, with some sellers reducing prices by 30% or more."

AIB said it has seen a "substantial lift" in the numbers of first-time buyers coming to them for a mortgage since the end of last year, adding that one in five of all new mortgages offered are in this market.

AIB also said that it is passing on the 0.50% ECB rate cut that was announced two weeks ago on some of its products from last night.

Tracker mortgages and the standard variable rate (SVR) for owner occupier mortgages both dropped by 0.50% but the SVR for residential buy-to-let mortgages is being cut by just 0.25% to 4.20%.

The bank is also reducing its three year fixed rate for owner occupiers from 3.35% to 3.10%.

It is reducing rates on a number of other accounts such as its high interest current account, its Access 30 for amounts between e100,001 and e2 million, parent saver and the regular saver accounts.

Special term account rates are reduced — in the case of the three year account to 2.10% and in the case of the five year to 2.50% from 3%.

The rate on the Access 30 account for amounts under e100,000 increases to 2.50% from 2.01%.

Meanwhile, a report from Merrion Stockbrokers said there are "concerns" around AIB’s attractiveness due to its Polish franchise weakening.

It said AIB’s 70.5% stake in Polish bank BZW is typically seen as a source of strength, providing earnings diversification and a potential source of capital if sold.

"However, as the economic and credit environments in Poland deteriorate BZW’s capital position could weaken to the point of requiring support from AIB," the stockbroking firm said.

- IRISH EXAMINER, Niamh Hennessy