Warning over tracker offers by banks

TRACKER-MORTGAGE holders have been warned not to rush into accepting discounts from their banks in exchange for moving to a different type of loan.

Banks are suffering huge losses on tracker loans and the Irish Brokers Association (IBA) has forecast that banks will consider “break discounting” large low margin tracker loans to get rid of them, similar to the experience in the USA in 2008 and 2009.

Offers by banks in this climate to switch lenders or change the terms of a mortgage should be given close consideration and a long term cost-benefit analysis should be carried out, according to IBA chief executive Ciaran Phelan.

“Tracker mortgages are a massively valuable commodity at the moment, the ultimate collector’s item, and those mortgage holders fortunate enough to have one would do well to remember that.”

IBA provided a cost of a single variable rate mortgage versus a tracker mortgage using the interest rates as 4% and 2% respectively.

On a €300,000 mortgage spread over 25 years, the monthly repayments were almost €200 less for the tracker, meaning the total cost over the lifetime of the loan would be €381,468 for the tracker compared with €475,053 for the single variable rate mortgage.

It said that gap could even be seen as conservative as some tracker mortgage holders have rates as low as 1.55% while some standard variable rate (SVR) customers are paying interest of more than 4.2%.

It also forecast that the gap between the two mortgage types could grow even further during 2011.

“Banks appear to be using SVR mortgages as their cash-cows of mortgages to suck in additional funds and boost their capital position,” said Ciaran Phelan.

“With this much money at stake, there’s a growing possibility that banks will consider break discounting large low margin tracker loans to get rid of them.

“Banks may still attempt to offer terms to customers to woo them off trackers, but we believe that tracker customers would need a break-deal offer in excess of 25% to make it worth their while.”

RTÉ’s Consumer Show last night revealed the results of a survey on the number of banks that would allow their customers to return to a tracker rate after fixing their rate for a period.

It found that customers of a number of institutions, including AIB, Bank of Ireland and Ulster Bank, would lose their trackers.

Permanent TSB indicated it would allow some of their customers who had a clause in their contract to go back to a tracker if they fixed and three lenders National Irish Bank, Irish Nationwide Building Society and KBC said they allowed their customers to return after a period of fixed rate.

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