Property & Mortgages

Friday 1 August 2014

Homeowners can move and keep their tracker mortgages

Charlie Weston Personal Finance Editor

Published 20/05/2013|04:00

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Picture posed. Thinkstock
Picture posed. Thinkstock

Homeowners who want to move house but are afraid of losing their low interest tracker mortgages will be offered a lifeline by two major banks. A tracker is a mortgage linked to the currently low rate set by the European Central Bank.

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Trackers are so cheap at the moment that the 375,000 homeowners who have them are reluctant to move house because they will lose the valuable mortgage rate.

Now the Irish Independent has learned that Bank of Ireland is to let movers keep their trackers for five years if they move house. And Permanent TSB is close to signing off on a new deal that will see families moving keep their tracker rate for the rest of the loan period.

With both banks, the tracker rate will apply to the outstanding amount of the mortgage. Extra money needed to buy a new property will have to be borrowed at a variable or a fixed rate.

Tracker rates are so cheap that someone who borrowed €300,000 on a tracker rate is paying €450 a month less than someone on a variable rate with the same-sized mortgage.

Interest paid on a tracker is linked to the European Central Bank (ECB). Most trackers are set at 1pc over the ECB rate.

This month's cut in ECB rates means most tracker holders are paying just 1.5pc on their mortgage. The standard variable rate at most banks is around 4.5pc.

Ulster Bank already allows its customers who are moving home to keep their tracker rate on the existing balance owned on their home and transfer this to the mortgage on the new home.

The rest of the purchase price will be on a variable or fixed rate. This means that someone who owes €100,000 and has a tracker at 1.5pc will transfer that loan on to the new property.

If the house costs more than this, the rest will be borrowed at the higher variable rate.

DECISION

Permanent TSB said it was likely to approve the new tracker-mover option by June.

Although the lender had yet to make a final decision to offer the product, it recognised there would be strong demand for it.

The Bank of Ireland offer is now in place, but is more complicated and not as attractive, according to mortgage experts.

Movers who have a tracker will get to keep it for just five years, not for the rest of the life of the loan, as in the case of Ulster Bank and what is expected from Permanent TSB.

And Bank of Ireland customers will face a higher tracker rate.

The new tracker will be the existing margin over the ECB rate, plus 1pc.

This means that someone who has a tracker set at 1pc over the ECB rate is now paying 1.5pc. But if they move the tracker to help finance the new home, the new tracker rate will be 2.5pc. After five years, they will be switched to a variable rate.

SOLUTION

A spokeswoman for the bank said: "This solution enables current Bank of Ireland tracker mortgage customers to move to a new home and have a tracker rate on their new mortgage for a period of five years."

The new deals won't apply to those in arrears, but will apply to those who are in negative equity – where the mortgage owed on the original property is greater than the value of the home.

And the tracker-mover deals only apply to existing customers of each banks.

People who are trading down – and do not need to borrow extra money – will be able to benefit from the deals.AIB, EBS, Danske Bank and KBC Bank said they had no plans at the moment to allow their customers to move house and keep their trackers.

Mortgage expert Karl Deeter said he was amazed banks had taken so long to offer tracker-mover products.

He added that the rest of the banks should help free up the property market with similar offerings.

Irish Independent

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