Saturday 22 July 2017

Tracker holders may get cash incentive to pay early

Charlie Weston Personal Finance Editor

MAJOR lenders are considering offering tracker mortgage holders a financial incentive to pay down their mortgages faster.

Permanent TSB is understood to be considering offering mortgage holders a credit for additional payments.

Someone who pays off €100 could get credit for €103 under the scheme, the Irish Independent has learned.

Permanent is also considering allowing people who move house for a new job, or to downsize, to take their trackers with them. Lenders are desperate to get tracker mortgages off their books as they are losing money on most of them.

Some of Permanent TSB's borrowers have tracker rates as low as 0.75pc above the European Central Bank (ECB) rate.

This means they are paying just 1.75pc compared with Permanent's standard variable rate of 5.19pc. On every €100,000 borrowed, the tracker holder would be paying €356 a month. This compares with €541 for the standard variable customer, a difference of €185 a month.

But despite many tracker mortgage holders paying rates of only 1.75pc, lenders have to constantly replenish their funds at higher wholesale rates.

One banking source explained: "If your tracker book is causing you pain then you are going to do something about it. All the banks are looking at it at the moment."

Last month it emerged that some heavily-indebted mortgage customers of Bank of Scotland (Ireland) have managed to get some of the debt written off. The bank, which shut down operations here last year, admitted it was working with customers to "restructure their debt in exceptional circumstances".

Permanent TSB had no comment yesterday, but it is understood to be looking at a deal for customers who accelerate their repayments.

The level of incentive has not been decided and the bank has yet to submit its plans for approval to regulators.

It is also looking at allowing those who are moving house to retain their trackers, in return for paying a slightly higher rate.

The deals would apply to both residential mortgage holders and those with buy-to-let investments.

Personal finance experts explained that overpaying a mortgage means a homeowner would pay off the mortgage quicker and save themselves money on interest payments.

An incentive to pay off early could be particularly attractive for those with spare cash on deposit.

Chief executive of the Irish Brokers Association Ciaran Phelan said the move could result in a borrowers' market as mortgage holders negotiate better deals in return for a change in the contract.

However, consumers need to engage independent advice as experience would indicate that you get nothing for nothing from banks, he warned.

Banks fear that distressed Irish institutions could end up selling off their tracker books at a massive loss, further undervaluing these loans.

Permanent TSB has acquired a reputation for leading on mortgage issues. It has pushed through a hike of a full 1pc in variable rates this year.

Irish Independent

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