Tracker mortgages are now so valuable they may be affecting the market

Tracker mortgages are now so valuable they may be affecting the market

The difference between having a tracker mortgage and not having one can be worth thousands per year in savings

Yesterday’s ECB rate cut will be a welcome boost for the 400,000 or so homeowners who will see their mortgage repayments fall by 0.25%.

However, the latest intervention by the European Central Bank to try and drive economic growth has only driven a bigger wedge between those who have trackers and those who have not.

Yesterday’s rate cut had been expected but, unlike in the past, lenders here took an almost unprecedented move by insisting they would not be passing it on were it to be introduced.

They confirmed this stance within hours of Mario Draghi’s lunchtime announcement and this, in effect, means that any savings made will benefit the banks rather than the mortgage holder.

The latest rate cut means that the gulf between those on trackers and those on standard variable rates is now as high as 3% – a gap which will see a person with a €300,000 variable rate mortgage paying more than €500 a month or €6,000 a year more on loan repayments than someone with a tracker the same size.

To add insult to injury, one national newspaper is reporting this morning that banks will now hike interest rates for the 300,000 customers on variable rates to try and make up for worsening losses on tracker products.

In the past, we joked about the ad that had the line “I don’t know what a tracker mortgage is” but post-boom everyone knows what one is.

Indeed, Michael Dowling of the IMAF, outlined just how valuable they were recently when he pointed out that a 25 year tracker mortgage of €250,000 would require a mortgage write-down of €97,462 to make it worth while giving it up for a standard variable rate.

Trackers have become so valuable that those who have them are afraid to move for fear of losing them and that is having a knock-on effect on the property market with a lack of new stock coming to the market and a lack of the natural upgrading and downgrading that occurs as people go through various life cycles.

In a week where credit ratings agency Standard and Poor’s reported that house prices here have now stabilised, the mortgage debacle is one of the key problems that led them to report that recovery was still a long way off.

With all that in mind, we’d like to get your opinion on the matter.

  • Do you feel it’s fair that banks aren’t passing on the rate cuts to all of their customers?
  • Would giving up your tracker put you off moving?
  • What sort of writedown would you want to consider giving up your tracker?

Have your say in the comments section below…

There are 28 comments for this article
  1. ReadoutNoise at 11:13 am

    @ Michael Baker ‘I believe that all mortgage holders who borrowed in the lead up to the crash that are now in negative equity, should be entitled to a full review of their borrowing and brought into line with their property’s current value.’

    @Motto ‘Yeah and who pays for the shortfall?’

    Exactly. Michael Baker’s idea is just fairytale economics. He wants to wipe not tens of billions, but hundreds of billions off our mortgages. That HAS to be paid for by the state, which means by the taxpayer, which means by us. Oops, we’ve just gone round in a circle…

    But it’s actually much worse than that! If you leave people to continue paying off their boomtime mortgages for the next 15 or 20 years, – and let’s not lose sight of the fact that the great majority of people are still managing to do that -, then it’s a manageable and gradual repayment schedule. But if you adopt Michael’s idea you would have to find all that write-down money RIGHT NOW to save the country from another collapse.

    Michael, write-downs should always be a last resort, and on a case by case basis. Otherwise you socialize other peoples’ eminently repayable debts onto the shoulders of “innocent” people who cannot take further taxes/cuts. You would be doing exactly what everyone already complains about; exactly the same thing that happened in 2008-2010: transferring the debts rung up by “the banks, the developers, and the bondholders” onto the ordinary citizen. Just as surely as Joe Citizen can say now “I am not responsible for Anglo’s losses!”, he would say “I am not responsible for the negative equity of everyone who bought near the peak of the boom!”.

  2. George at 10:06 am

    the banks should be made to pass on the reduction they are quick enough to pass on a rise in the rates as soon a rate is raised you get a notification from your bank within in a couple of days with your new price increase but when it is reduced it takes about a month for your bank to notify you i remember having 7 increases in my tracker bringing me from €900 per month to almosy €1500 per month i didnt hear people sympatising with me then.

  3. ReadoutNoise at 9:57 am

    @ Kevin: “Surely not passing on the saving is in contravention of EU Law? Trackers are, by their very definition determined by ECB – not Irish Banks!”

    Calm down Kev. Interest savings ARE always passed on to tracker holders (as are interest rises too…like in 2008 when trackers became more expensive than fixed mortgages for a while).

    It is only in the case of SVR mortgages that interest rate reductions are often not being passed on, and that too is legal (if unethical), as the SVR margins are at the bank’s discretion.

  4. James Heaney at 4:27 pm

    Why is it that the banks are losing money on the tracker mortgages? If they are getting the money from the ECB at 0.5% and lending it out on the trackers at +1% above ECB rate, then they not losing money on them. Ok it is not as profitable as on variable rates, but they not losing money! This was the whole idea of tracker mortgages, to protect the banks and customers from sudden market changes in rates.

  5. Lindagar at 8:10 pm

    It’s the usual “divide and conquer” rubbish.. trackers -v- variables – public sector -v- private, etc. etc. etc. The banks didn’t do their jobs, don’t get sacked, and are being paid massive salaries – it’s obscene. The Government bail out the banks (and bankers) so they can pay back the bondholders… meanwhile those on tracker mortgages who had to take out massive mortgages to afford a home for themselves are now being blamed by the “variables”???!!! What the banks are doing to these people is OUTRAGEOUS – I agree with the post above – get busy making your representative’s lives a hell until they realise, once and for all, WE HAVE HAD ENOUGH!!!

  6. Tim McMahon at 7:53 pm

    How typical that some blame the tracker holders and not the banks. That is the kind of mentality that elects crooked governments, replaces them with liars and then accepts that the people must suffer – not the bankers and politicians.

  7. Emmigrating Soon at 7:31 pm

    I do feel sorry for those trapped by the banks but I don’t think hammering those of us lucky enough to have trackers is the solution. Those on variable rates who expect rate cuts to be automatically passed on are missing the point I think, that’s what a tracker is. A variable rate is just that, variable and unfortunately that can mean up or down. Everyone on a mortgage enters into a binding agreement with their bank and I think the moral hazard argument which the banks were quick enough to point out when debt forgiveness was being debated applies just as well when the positions are reversed. People should remember this the next time someone comes looking for their vote.

  8. Frank Bodley at 3:17 pm

    Socrates, I will get the AIB to give you your mortgage. Just done 3 this year.

  9. Frank Bodley at 3:15 pm

    Yes its a real lark

  10. motto at 3:14 pm

    @ Michael Baker ‘I believe that all mortgage holders who borrowed in the lead up to the crash that are now in negative equity, should be entitled to a full review of their borrowing and brought into line with their property’s current value.’
    Yeah and who pays for the shortfall?
    You wouldnt hear much of this argument if there was positive equity! If you were dumb enough to borrow too much for something that you can not now afford then just hand back the keys and grow up some more.

  11. Andrew at 3:13 pm

    When is a Contract not a Contract?

    Appears to be when it is with an Irish Bank.

    The level of Usury being allowed to continue by the banks without any protection for Both the Irish Citisen and the Economy is nothing short of a disgrace.

    Money (a product) has never been cheaper to the banks, yet they are allowed charge exorbitant interest rates for lending the product.

    Business who can get a short term loan (overdraft) are being charged as much as 15% for money that is costing the banks .5% that is a mark up by a factor of 30.

    Note I said “Who can get a loan”

    Yes the banks were stung by their own greed which caused the present ongoing crisis in this country.

    Surely that is no reason to justify the continued beating of the people?

    Not only should the banks be forced to pass on the drop for Trackers they should be forced to reduce the Variable Rate and the general lending rates.

    If our banks have proven themselves to be unsustainable in this market they should be sold to a “Parent Bank” that can afford look to the future profits they can make from a revived economy and part of the conditions of the sale being approved by the Central Bank / Government should be the new bank will have to open the lending books in a manner that is good for the Irish economy.

    Our Government appear to be allowing the people to be held hostage by one sector, this is not good for the economy, the people or the Nation.

    The banks sold a product (Tracker Mortgages) in the belief that they would be making a fair profit from the product, if somebody (the board) got it wrong then sack them and appoint a group who are competent to do the job they take on.

    I don’t have a tracker in fact my mortgage is so small it would not buy a good car so I am not worried about payments.

    I am however very concerned at the the cost of all the luxuries this country wants because it appears we are top heavy with bankers and politicians neither of which appear to be able to produce value for the country.

    As citisens we have control over the one sector who can legislate for fair treatment of the people if and when necessary.

    So get out and call the politicians to act in your best interests.

    Of course you can whinge on web sites but that only means the politicians don’t have to do their job because the steam, anger, passion has been vented on the keyboard.

  12. Phil Thompson at 2:55 pm

    You have hit the nail on the head. The “tracker effect” is undoubtedly restricting people from moving. Why sell and downsize when your new payments will be more than your old ones! To upsize you are not just paying for the increased price of the more suitable home, but also the vast increase in interest. The jump is too big for most people. The banks will have to buy out trackers before there business will pick. The sooner they see that the better for us all, especially people who are living in accommodation which is now totally unsuited to their situation.

  13. Socrates at 2:24 pm

    I’m a first time buyer, have my deposit saved, but I’m having a nightmare trying to get approved by AIB bank!

    I don’t think they’re lending to anyone to be honest!

    And If they’re not getting any new customers – they’re going to bleed their existing customers dry in a way we probably cannot fathom right now.

  14. Michael Baker at 2:13 pm

    When the crash started I sent an email to the main political parties. My opinion then is still the same today and will have to happen if we are to get the country back to normality.
    I believe that all mortgage holders who borrowed in the lead up to the crash that are now in negative equity, should be entitled to a full review of their borrowing and brought into line with their property’s current value.
    By this I mean if a loan was issued on a property when it was valued or purchased at during the peak say in 2000 to 2007, the bank should adjust the loan based on its current value and use the old system that was in place to evaluate how much the borrower can afford based on the buyers income. A new loan matching these criteria should be then activated and the old one discharged.
    This of course there would be a huge loss to the banks in the short term but very beneficial in the long term. They are going to lose out no matter which way they deal with it.
    It is quite simple, if you can’t pay, YOU CAN’T PAY.
    By doing this simple exercise you will achieve the following.
    • People will start to trade property again
    • People will buy and sell either upsizing or downsizing
    • Struggling Businesses will benefit from new house sales
    • New jobs will be created
    • The banks will be back in the mortgage business
    • More money will circulate
    • The economy will start to work and grow
    • Normality will return
    • The banks will make profit from their new mortgages
    The list goes on and on!
    Property tax should only apply to property that was purchased during or after 2012
    No property tax should be paid on property that had the enormous stamp duty in the recent years, when it is sold on then it becomes liable.
    Eventually all property will end up liable for the property tax as they are bought and sold.

  15. Sara Swann at 2:08 pm

    My Bank, AIB is not the flavour of the month. I had two interest increases on my variable mortgage within two months of each other at the end of last year and is now increasing again. I am feeling financial stress as my job has gone part-time and the office is closed for the month of June. I think it should be compulsory for the Bank to lower the rates when they are announced. The economy is never going to recover and spending is not going to get back to normal if the Banks keep raising the Variable Rates. The people on the trackers are so lucky, I wish I had one!! I too wish I could get out of this country as I hate it at the moment!!

  16. Shane at 1:42 pm

    The fact that I have a tracker is preventing me from moving house. I am keen to move and would but am not keen on giving up this valuable asset for free. I had an expectation that the Personal Insolvency Bill was going to introduce the ability to transfer this mortgage to another property – this has not transpired.
    Guess I shall just sit tight – why should fair market prices not apply to customers – I know if I tried to get out of a fixed mortgage and rates had gone up I would have to reimburse the bank – personal experience..

  17. padraig at 1:26 pm

    As of last week my variable rate mortgage went up by 0.25% and now the new ECB rate drop is not been passed on it seems anyone on a variable rate mortgage is paying for the loss making tracker mortgage with these state banks,it seems to me that Fine Gael are proving no better than the previous government when it comes to this and have little concern for hard pressed mortgage holders but manage to stay silent at the BOI agm ang give the directors salaries of over €16k per week,please do not come to me looking for support again as from what i see we are been screwed by state banks increasing mortgage rates and now property tax how can the economy grow,it seems the only people you listen to is your European friends but will they put you back in government again?

    I am very disappointed with this government to date and would have expected more but they are taking more money out of my pocket and making it difficult to live here ,it will force people to leave and go to the UK for bankruptcy.

    the idea of the ECB rate cut is ti stimulate the economy not the banking sector as we are paying for this with extra taxes and now interest rates what will Michael Noonan do now regards this? i presume nothing.

  18. Aisling at 1:02 pm

    I’m on a variable mortgage and AIB have sent a letter to tell us they’re putting their interest rates UP – despite ECB rates going down – disgraceful and should be illegal! Am really struggling to pay at this stage. I think the Government should intervene to protect those on variable mortgages from indiscriminate price hikes or they will force many more variable holders into arrears.

  19. Kevin at 12:57 pm

    Surely not passing on the saving is in contravention of EU Law? Trackers are, by their very definition determined by ECB – not Irish Banks!… how much can these Banks get away with before we as a people take a stand?? Ever get the feeling that no matter how bad things got we would just take it?

  20. John at 12:57 pm

    The banks have been slow to foreclose on bad debtors for fear of depressing the market if too much re-possessed property comes up for sale.
    The policy of hiking variable rates to compensate for losses on trackers is good news for patient buyers.
    House prices will continue to fall.
    It is a vicious cycle of ruin for the value of the assets in NAMA and may end up with another bailout required from Europe.

  21. Cilian at 12:43 pm

    Irish banks who cannot maintain sustainable businesses should be forced to sell of their tracker mortgage books to banks that can. What these banks are doing to their non-tracker clients is outrageous, forcing them to pay for the banks bad business and there are no actions being taken to cure the issue. Any other business would be forced to sell of the business they can’t afford to maintain.

  22. Ciaran at 12:41 pm

    As ever, I first mention that I am not living in Ireland so this is just a theoretical issue for me. However, I really feel that I must question the assumption that there is always some ulterior motive on the part of the banks to get people off trackers. The fact is that they are losing money hand over fist on them and this affects not just those on variable rates but all taxpayers through the need to recapitalise the banks, including to cope with their tracker losses. I think we can safely say no trackers have been approved since the crisis began and that many of them were taken out in the period 2004-07. At that time, ECB rates were five or six times the new 0.5 % rate, if not higher. This means that those on trackers must have seen a huge fall in their repayment costs. In recent years, the banking sector has undergone unprecedented upheaval (with one bank and one building society going bust, others being nationalised and a huge banking-related increase in the national debt). In such circumstances, would it be such a crime for the government to use its emergency banking legislation to add say a ‘variable levy’ to tracker rates in order to bring them at least a little closer to the cost for the banks in financing them?

  23. ID at 12:33 pm

    I would never give up my tracker, its worth its weight in gold. Mortgage outstanding is for 240k (24 years reamining). Tracker is ECB + .6. Including mortgage interest relief my monthly repayments will be less than €900 a month with the latest ECB cut. I was paying more renting in 2006. What the banks are doing to the SVR customers is nothing short of criminal. How Michael Noonan can stand by and leave the banks continously hike interest rates is beyond me.

  24. Frank at 12:33 pm

    To give perspective I have both a split Tracker and a Variable mortgage. They are different products. I knew that when I took them out. Why do you insist on comparing them?

  25. Colm at 12:27 pm

    Speaking as a Tracker holder it would take at least 33% writedown before I would consider coming off the tracker. However could the government ever bow to pressure from the bankers and introduce legislation to allow banks break the tracker contracts “in the national interest”? Personally I wouldn’t put anything past them.

  26. Margaret at 12:25 pm

    I am one of the 400,000 tracker mortgage holders. In recent months the attitude to tracker holders habeen shifting and in conversation I ha had it suggested to me, more thna once, that tracker holders are to blame for the rates paid by variable rate mortgage holders. Trackers existed when house prices were insanely high, in fact trackers were part of the low interest lending that doubtless contributed to the massive hikes in house prices during the boom (wlongside 100% mortgages etc.). We only have trackers because we had the misforunate to be at the stage in our livewhen buying a house to raise our families in brought with it an inordinately high price tag. Yes, the tracker rate is low, but in general it applies to very high mortgages on properties worth less than half that debt now. Having paid roughly the equivalent of an annual gross salary on stamp duty we are also now paying property tax. yes, peopel wiht trackers have a good interest rate but that rate applies to a debt that would make most variable rate mortgage holders eyes water. and it is a debt on an asset value that no longer exists and it likely never to recover to the amount of debt incurred to acquire the asset. you can’t take half a picture and make deductions. To make removal of the trackers reaonsable, the debt would have to be much closer to current values.

  27. Rez at 12:19 pm

    I’m actually not going to buy a house now because of this. I can afford it, I’m approved for a mortgage but I would rather rent for life than be abused by the banks like this. I‘m fortunate enough to be able to get the LTV of my mortgage to below 50% if I choose, but AIB’s rates are going up (UP! Despite ECB rates going down) to 4.09% for an LTV of below 50% where there is now virtually no risk to the predatory banks! This is shocking. I really don’t know if I want to live in this awful country any more. I think I’ll start brushing up on my German.

  28. ollie at 12:14 pm

    My view is that trackers are having a significant impact on the property market and have been for at least a year or two although it is now getting more attention as the gap widens. I know several people in my immediate circle who are in this situation, myself included.

    I would want at least a 30-40% writedown to consider leaving the tracker.

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