Lenders warned: don't bully those on tracker mortgages
Watchdog urges probe into banks' 'inducements' on home loans
Published 28/07/2010 | 05:00
MORTGAGE lenders were warned yesterday not to attempt to bully homeowners into giving up valuable tracker mortgages.
Financial Services Ombudsman Bill Prasifka said lenders were required under law to act in the best interests of their customers, and trying to pressurise them to give up a tracker was not acting in their best interests.
He strongly criticised what he termed as "unwarranted and unsolicited" moves by banks to entice people off low-rate tracker mortgages.
Mr Prasifka was speaking after his annual report showed that his office ordered a building society to put a couple back on a low-interest tracker after they took up a fixed rate for two years.
Tracker-rate mortgages are considered one of the best value financial products as the interest rate charged on them can only increase when the European Central Bank (ECB) raises rates.
The ECB rate is at an all-time low of 1pc, has not moved now for 14 months, with no expectations of a rate rise until the middle of next year.
Some homeowners have trackers which are set as low as 0.5pc above the ECB rate. Lenders are losing money on some of the lower-rate trackers -- as it costs them more to raise funds at the moment than they are charging for these mortgages.
The couple who complained to the ombudsman had taken out a mortgage for €1m over 30 years in June 2007.
They were given a tracker rate that was set at 0.75pc over the ECB rate.
In August in 2007 they decided to switch to a two-year fixed rate at 4.79pc. Monthly repayments on this would have been €5,179.
When the fixed-rate period ended last August the unnamed building society told them they would now go on to a tracker that was 1.1pc above the ECB rate. They complained to the ombudsman and he ruled that the lender must put them back on the original tracker rate of 0.75pc above the ECB rate.
The fact that the couple are back on their tracker of 0.75pc above the ECB rate means their monthly repayments have fallen to around €3,565.
Mr Prasifka said his office was dealing with a string of complaints from people who had been offered what he called "unsolicited inducements" to come off trackers.
He has called on the Financial Regulator to investigate the whole area of homeowners being induced to sign away their trackers.
Some 400,000 people have tracker mortgages, with trackers representing 60pc of the mortgage book of most lenders in this market.
The government-appointed Mortgage Arrears and Personal Debt Group recommended earlier this month that lenders should be banned from taking trackers off people who get into arrears with their mortgage repayments.