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Tuesday 27 June 2017

Homeowners are trapped by their tracker mortgages

Banks' policies penalise those moving house

Jerome Reilly

Jerome Reilly

Tracker mortgages have become "golden handcuffs" for 400,000 householders who cannot trade up or down without sacrificing the blue-chip loans that automatically benefit from European Central Bank (ECB) interest rate cuts.

Banks and building societies are refusing to transfer tracker mortgages if the customer wants to move house -- even if the new property costs the same or less than the original home on which the tracker mortgage was approved.

Instead they must pay off the tracker and go on to a new variable-rate mortgage.

The difference in monthly repayments is significant.

If a mortgage holder who has borrowed €250,000 over 30 years on their original tracker mortgage transfers to a variable-rate mortgage for the same amount, they will have to pay a minimum of an extra €300 a month, depending on the variable rate offered by the financial institution.

One man on a tracker mortgage who was thinking of moving house said: "We rang our lender to see if we could get the mortgage transferred over to the new property. We were told we would have to pay off our tracker on the current house and then get a variable-rate mortgage on the new one. That's a bit of a disincentive for us to move."

Tracker mortgages follow the ECB rate but banks are not obliged to pass on rate cuts to those on variable rates.

Recent ECB cuts have taken some of the sting out of rises in the cost of living and austerity taxes.

On Thursday, the ECB announced it would cut its benchmark interest rate for a second month in succession.

The base rate will go down to 1 per cent from 1.25 per cent on Wednesday, which means holders of the average-sized tracker mortgage of €300,000 will be better off by about €30 a month.

Finance expert Frank Conway, of the Irish Mortgage Corporation, told the Sunday Independent that the legal contract on an existing tracker mortgage was always against a particular property.

"The banks will obviously look at any clause that will allow them to get out of jail on a tracker mortgage and they will keep doing it."

He said banks were now focused on two issues, improving their capital ratios and the elimination of risk.

"What do you do if you are a TalkTalk worker in Waterford on a tracker and have been offered a job in Dublin and have to move? You are in a dilemma. You would have to pay an extra €300 a month on a €250,000 loan if they move from a tracker to a variable rate. That could bust many people's budgets," he added.

Mr Conway also urged people who were coming to the end of four- and five-year fixed-rate deals to check the terms of their mortgage contracts to see if they could receive attractive tracker deals when their fixed-rate term expired.

Many people took out loans in 2006 and 2007 at a time when tracker mortgages were extremely popular with banks.

In cases where clients opted for the certainty of a four- or five-year fixed-rate payment plan, many of the mortgage agreements were structured to revert to a tracker mortgage once the fixed-rate period expired.

"There are likely to be some mortgage holders who took out four- and five-year fixed-rate deals who may have forgotten about the terms of their contracts," Mr Conway said.

"Because they are not aware of the terms of their original mortgage contract, they may decide to go for another fixed-rate period, unaware that they are eligible to go on to a tracker which is far cheaper at the moment."

Between 2006 and 2007, four- and five-year fixed-rate mortgages were costing between 4.5 per cent and 5.5 per cent. For fixed-rate mortgage holders eligible to revert back to tracker deals, the monthly repayments on a €250,000 mortgage will fall from about €1,266 to about €988.

Sunday Independent

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