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…