Underhand moves by lenders to cheat their customers laid bare
Published 17/12/2016 | 02:30
In time we will look back at the bubble and bust of the last few years and conclude that the tracker mortgage played a pivotal role in the whole unsavoury mess.
Trackers, though not the main culprit, were certainly a weapon of mass financial destruction.
Banks used trackers to inflate the housing market.
The low interest rates that are a key feature of trackers, and the consequent low monthly repayments, meant banks could loan out more than was sensible to give their customers.
So people borrowed more than they should. A mortgage of €400,000 was not unusual at that time.
Property prices spiralled upwards, mainly because buyers were tooled up with the turbo boost a tracker mortgage gave to them.
Many of these boom buyers now regret their excessive borrowings, with the only saving grace being that the mortgage repayments are low.
A tracker is a mortgage where the interest you pay tracks the European Central Bank (ECB) main lending rate.
The interest rate is set at a margin over the ECB rate, and can change only when the ECB alters its rate.
Many trackers have a margin of 1pc over the ECB rate, with some having a margin as low as 0.5pc.
With the ECB rate being 0pc at the moment, this means a typical tracker customer is subject to interest of just 1pc on their mortgage.
Compare that to someone with a variable rate of 4.5pc. The difference in monthly repayments on a €300,000 mortgage is €500.
It is clear now banks did not understand the financial dynamics of the tracker product.
We had the infamous advert, commissioned by the then Financial Regulator, of punters on the top deck of a double-decker bus exclaiming one by one that they did not know what a tracker was. But it should have featured pinstriped bankers, with big bonuses, shouting: "We have no idea what trackers are, and what damage they will do to our banks."
When the crash occurred and the banks blew up, due to overlending on residential and especially on commercial property, they systematically and shamelessly tried to strip people of their tracker mortgages.
Their expensively hired lawyers told them they could not wriggle out of the tracker deals, the contracts were watertight.
So they used underhand ways to extract themselves from the mess of their own making. Many people with trackers panicked when the ECB rate started rising dramatically from 2006 onwards.
They opted for a fixed rate, but were denied a return to trackers when the fixed period ended.
Banks stopped offering trackers from 2009. So when these people wanted to return to their trackers they were told: "We no longer offer trackers."
Never mind that it was never explained to the affected customers that by opting for a fixed rate they may not get their tracker back.
This raises issues in terms of the Central Bank's consumer protection code.
And never mind that many of the contracts stated that the tracker was offered to the customer for the life of the loan.
Banks got encouragement to deny homeowners trackers from the bailout Troika, which saw trackers as a huge drag on the banks' balance sheets.
Now the banks are paying the price for their overcharging, after the Central Bank belatedly took action last year and ordered an industry-wide probe of the scandal.
The tracker-denial debacle was little short of theft.
It is the biggest financial scandal to occur in this country, by a long way.
People paid thousands more euro in repayments because they were denied a tracker. Many went into arrears as a result, and we know that at least 51 lost their homes as a result of the tracker-denial scandal.
It was shameful, wrong and sums up why bankers are despised in this country.
The day of reckoning has finally arrived.
Banks will be fined, forced to refund and compensate customers, and restore trackers in at least 10,000 cases, across up to 15 lenders.
The pity of it is that the bankers and their advisers will not be identified, shamed and individually fined for what should go down as a crime against their customers.