33% of mortgage holders won’t reap rate cut rewards

A THIRD of all mortgage customers will be left swinging with higher rates next year as they effectively subsidise additional benefits for half of households on tracker deals.

In the new year, 53% of home loans will benefit from successive repayment reductions inside two months as their tracker deals drop in line with interest rate cuts recently announced by the European Central Bank.

However, a third of customers, who have variable terms, will not reap the same rewards because key lending banks are not passing on the rate cuts.

Figures from the Central Bank show €52 billion of residential mortgages are on tracker rates while €31bn are on variable deals.

When the ECB began lowering its rates to stimulate growth in central Europe, Financial Regulator Mathew Elderfield warned the banks against hiking variable loans to cover losses incurred when they passed on the tracker cuts.

However Ulster Bank, KBC, National Irish and AIB all refused Government requests to lower variable rates or reverse increases announced in recent times. Bank of Ireland did drop its variable package.

It has been reported the Central Bank is now considering an outright ban on variable rates for mortgages and could require all customers to tie themselves to fixed terms. A policy document is being prepared by the Central Bank on options and pitfalls for such a move.

The regulator’s figures have also revealed the number of mortgage holders who have security on their medium term repayment terms versus those whose monthly bills are liable to rise and fall relative to the fluctuating rates.

This data showed that, among Irish banks, fewer homeowners are now linked to fixed term loans than at any stage during the boom.

However, the ECB’s strategy of cutting rates during the crisis saw the total of fixed mortgages in the Irish market fall from 25% in 2007, to 19% at the end of 2008, and 14% at the end of 2009. At this point the ECB began raising rates by a quarter of a point and banks started adding their own increments in a bid to bolster their incomes.

The Central Bank’s figures also revealed the value of loans tied to fixed rate mortgages in primary homes increased during 2011 from €10.8bn to €11bn.