Analysis carried out by the Irish Brokers Association, has concluded that tracker mortgages are now valuable commodities and shouldn’t be changed unless banks offer a significant financial incentive to switch.
More than half of residential mortgages and 70% of buy to let mortgages issued by the guaranteed banks are trackers.
Chief executive of the Irish Brokers Association, Ciaran Phelan said: “In order to be incentivised to switch from the tracker rate to the variable rate, the loan would have to be written down by around 25%, otherwise the borrower would appear to be better off staying with the present tracker.”
The Irish Brokers Association study based on a €200,000 tracker mortgage at the current ECB rate plus 1% would be €1,019.28 per month for 20 years. A standard variable mortgage at 5.2% would cost €1,306 per month. Over the life of the mortgage, the tracker would be €51,306 cheaper than the variable mortgage.
“Tracker mortgages are a massively valuable commodity at the moment, and we are advising those mortgage holders fortunate enough to have one to seek independent financial advice before considering switching to a standard variable rate or taking up any offer to accelerate their repayment,” said Mr Phelan.
Mr Phelan said in many cases, even where people sell houses below the cost of their tracker mortgage they are still saving the bank money.
“Consumers who choose to sell their property and clear off their tracker mortgage, are effectively granting a typical €50,000 ‘debt forgiveness’ to their bank on a mortgage of €200,000 with 20 years left to run.”
Mr Phelan called on the banks to recognise this and write off any money owed where people short-sell properties on trackers.
Banks are losing money on the tracker mortgages as they are locked in at a fixed margin over the European Central Bank rate.
Permanent TSB announced yesterday it has set aside €1.4bn to deal with losses on its mortgage book. Some 60% of Permanent TSB’s €26bn Irish residential mortgages are trackers, which cost the bank more to fund than it makes in interest payments from borrowers. Bank of Ireland has €17.4bn of trackers, €14.5bn of AIB’s mortgage book is in trackers and EBS has €3.7bn of trackers on its books.