Friday 28 July 2017

Charlie Weston: Vulture fund's discount makes trackers even better value

'With European Central Bank rates unlikely to rise for years, trackers are set to remain stand-out value for a while yet.'
'With European Central Bank rates unlikely to rise for years, trackers are set to remain stand-out value for a while yet.'
Charlie Weston

Charlie Weston

So now we know. If you are lucky enough to have a tracker mortgage it has now been confirmed that it is even more valuable than we previously realised.

With European Central Bank rates unlikely to rise for years, trackers are set to remain stand-out value for a while yet.

And while we are dispensing the good news, variable mortgage rates could fall this summer when legislation designed to tackle the great mortgage rip-off is due to be enacted.

The new law will give the Central Bank powers to cap mortgage rates. If it all works out, variable rates could fall again, after some movement in the past two years.

Tracker mortgage holders don't need to worry about whether or not new laws come in to force better mortgage value, as they are already have rock-bottom rates.

And recent events have copper-fastened the value of trackers.

This is the move by vulture fund Tanager, which took over thousands of Bank of Scotland mortgages here to offer to sell homeowners their tracker home-loans at a huge discount.

Tanager, which is part of a large US private equity fund, is offering discounts of up to 40pc on the outstanding debt if the tracker mortgage holders can get them financed somewhere else.

This is now expected to be followed by other vulture funds offering to sell mortgages to homeowners at a discount.

The Tanager offer has set the benchmark for the value of a tracker.

Previous calculations by actuaries working for the likes of the Irish Brokers Association put a much lower value on a tracker. The calculation estimated a homeowner would need a discount of 25pc to sell a tracker.

The Tanager offer means someone with a €300,000 mortgage would get a discount of €120,000 if they can get it refinanced elsewhere, but they will lose the tracker rate.

It could be that Tanager is offering this huge discount as it may have some issues around the title of its mortgages. It failed in an attempt to repossess a property recently after it was discovered there was an error in Bank of Scotland's sale of the mortgages to Tanager.

That may be the case, but the 40pc discount offer has now set the bar for any future bids by vulture funds or even banks to buy out trackers.

It comes at a time when 15 lenders are being forced by the Central Bank to examine whether they wrongly took trackers off homeowners. Some 15,000 people lost trackers in the tracker-removal scandal.

If you have a tracker, the bottom line is that should accept nothing less than a 40pc discount on the loan if someone wants you to give it up.

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