Sunday 21 December 2014

Charlie Weston: Tracker swap plan will free up family houses

Published 27/02/2014 | 02:30

There are now close to 74,000 residential mortgage accounts in arrears for three months or more, down from close to 80,000 at the end of last year
Switching mortgages can save families serious money. Picture posed. Thinkstock

HAVE tracker, not going anywhere. That could be the motto for a generation of boom buyers.

Trackers have proved to be such good value that only a fool would give one up, even if there is a need to move house to accommodate a growing family.

That is the dilemma facing thousands and it is one of the key reasons the property market is dysfunctional.

Tracker interest rates are directly linked to the ECB lending rate. This means the rate can only change when the ECB changes rates. The other key point is that most tracker rates are set at a very low level.

This means some tracker holders are paying as low as 1pc on the mortgages. Compare that with some variable rates now close to 5pc.

Tracker products are hugely loss making for banks. And homeowners will not give up their trackers, so everyone loses here.

CONTRACTS

Some banks are known to have engaged lawyers to look at wriggling out of tracker contracts. The lawyers said this could not be done.

And separately, Ulster Bank lobbied the Central Bank to be allowed to take trackers off those in arrears. The Central Bank said no dice.

All of this means the only viable option for banks losing money on trackers, and homeowers who won't move home for fear of giving up the tracker, is a decent tracker transfer product.

Permanent TSB has seen the light, and the expectation is that AIB and its subsidiary EBS will be forced to follow.

Bank of Ireland and Ulster Bank offer tracker transfers, but their offerings are more restrictive.

Permanent TSB will probably break even on this new deal, but it will also help free up the supply of houses.

And chief executive Jeremy Masding will curry favour with his bosses in the Department of Finance.

It is a win-win all round.

Irish Independent

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