Warning to homeowners leaving fixed rate loan deals

THOUSANDS of mortgage holders can expect to see their repayments plunge by up to a third as they come off fixed rates.

However, they have been warned to be alert as many houseowners may be entitled to switch from a fixed to an attractive tracker mortgage and may be encouraged not to do so by the banks.

This news comes as the European Central Bank (ECB) holds interest rates at their record low of 1%.

The ECB also yesterday put pressure on the Irish Government over its budget plan, saying deadlines will have to be met.

ECB president Jean-Claude Trichet said it is crucial that Ireland follows through on its renewed commitment to tame the budget deficit by 2014 with “precise action and precise decisions”.

Meanwhile, houseowners who locked in at high rates two years ago could save up to €300 a month when they come off the fixed rate due to record low interest rates.

Many mortgage holders on two-year fixed rate loans will be reverting to tracker deals ranging between 2.1% and 2.25%. In October 2008, the average two-year fixed rate mortgage for residential properties was 5.7%.

It is estimated that up to 6,000 houseowners could be affected, with many having the option to revert to a tracker loan, according to Frank Conway of the Irish Mortgage Corporation.

“Until October and November 2008, it was still possible for fixed-rate mortgage holders to receive mortgage contracts whereby their loans would revert to a tracker rate at the end of the fixed rate period,” he said.

Typically, tracker loans range between 1.1% and 1.25% over the ECB base rate of lending, which continues to be set at 1%.

“For mortgage holders whose renewals come due in the next few months, they must now carefully review their options as many will be reverting to extremely competitive tracker deals. Many banks are now likely to encourage customers to migrate away from unprofitable tracker mortgages,” said Mr Conway.

“I would strongly encourage mortgage holders that are now coming off their fixed rate period to carefully check the terms and conditions of their mortgage contract or talk to an independent mortgage broker. If the contract clearly states that the mortgage holder will revert to a tracker rate, they should choose that option over opting for another fixed rate period unless they receive iron-clad assurances from their lender that opting for another fixed rate loans will not result in the loss of a competitive tracker option in the future,” said Mr Conway.

Marie Diron, senior economic adviser to Ernst & Young, said the ECB would probably like to increase the pace towards exit of the unconventional measures early next year, by taking back control on the amount of liquidity offered to banks.

“But the ECB is mindful of developments in the US and the rest of the world, as regards their economies and monetary policy decisions,” she said.

“We think that the ECB will keep its recent policy stance unchanged. It will continue to monitor demand for liquidity from banks,” she added.