Permanent TSB is preparing to join Bank of Ireland in allowing existing mortgage customers move property and keep their tracker mortgages. AIB is ‘examining’ options to do the same.
There are approximately 375,000 homeowners in Ireland with tracker mortgages. Many of those sweetheart loans cost 1% or less over the European Central Bank rate of .5%. The economic cost of such loans are enormous for banks. For many, the very word ‘tracker’ has become synonymous with loss making. For mortgage customers on the other hand, the word ‘tracker’ means the complete opposite.
The fact that banks are beginning to explore options in respect to tracker mortgage customers gives rise for hope. Permitting mortgage holders move property and keep their tracker deals, albeit at higher tracker margins represents the best fair deal for lender and borrower.
Doing so allows banks to:
- retain customers,
- increase the effective margin,
- allow mortgage holders relocate for employment (and continue paying their loans) and
- generate goodwill
For mortgage customers, being able to move property can provide significant social and economic benefits. Larger families require more living space and employment opportunities in distant locations can provide a route to higher earnings or even a return to employment.
Unlike their standard variable rate (SVR) cousins, tracker mortgages provide a significant level of financial certainty as the ‘margin’ is linked to the ECB benchmark rate (or it should be).
Understand the detail.
Before signing the line on any new tracker mortgage arrangement, mortgage customers should first ensure that the tracker margin on the new loan is iron-clad and does not contain ‘escape clauses’ which a mortgage lender could exercise should circumstances warrant.
This has been what happened recently in the UK when Bank of Ireland announced it would increase margins on tracker mortgages even though the Bank of England has been keeping interest rates at a record low there.
Irish banks have an opportunity to reinvent themselves, to look after their commercial positions while providing a range of products and services that serve the wider community in which they operate. Tracker mortgages that carry more realistic margins would be one way of doing this. They would give lenders a more realistic ‘cushion’ that makes commercial sense. They should also permit borrowers a high degree of assurance that their borrowing costs are based against the wider economic realities of the day…and not against the short-term financial needs of the mortgage lender.