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Louise McBride: Only give up your tracker if you get a big writedown

The days of untouchable tracker mortgages are numbered. These mortgages – the cheapest around – are invaluable to hard-pressed homeowners. To a homeowner with €250,000 left to pay on their mortgage, a tracker mortgage could be worth almost €100,000, The Sunday Independent has learnt. To an investor with a similar mortgage, a tracker could be worth almost €150,000.

Tracker mortgages were snapped up by hundreds of thousands of homeowners before banks stopped offering them in 2008. Until recently, they were considered sacrosanct. However, there have been a few worrying developments.

Earlier this month, the Central Bank's director of consumer protection, Bernard Sheridan, said that banks could be given the green light to take tracker mortgages off those in serious mortgage arrears. Under new mortgage arrears proposals being considered by the Central Bank, those with unsustainable mortgages who are in danger of losing their homes could have to give up their trackers – in return for their bank writing off a certain amount of their mortgage debt.

"Banks are expected to propose long-term sustainable solutions to borrowers in arrears to assist them remain in their homes, where feasible," said a spokeswoman for the Central Bank. "The current version of the code of conduct on mortgage arrears does not allow a bank to remove a borrower in arrears off a tracker rate. However, the proposal is that if it is to the overall advantage of the borrower, such as linked to some debt forgiveness, then a lender may do so. This has to be an agreed solution."

Mr Sheridan's comments came only a few weeks after it emerged that Bank of Ireland UK jacked up the interest rate of 13,500 of its British customers on tracker mortgages. Some of these customers saw their monthly mortgage bills triple as a result of the move – which arose after the bank triggered a special condition clause in the customers' home loan agreements – allowing it to increase the interest rate. on the tracker mortgage.

Bank of Ireland insisted last week that it "has no plans to change or withdraw tracker mortgages from existing customers" in Ireland. "The UK change reflected the features of a particular book in the UK jurisdiction," said a spokeswoman for the bank.

However, the move by Bank of Ireland UK sets a worrying precedent, warned Michael Dowling, a spokesman for the mortgage brokers, the Independent Mortgage Advisers Federation (IMAF). "The bank increased the tracker rate whether the homeowner was in arrears or not," said Dowling. "I'm concerned that something similar could happen in Ireland."

Indeed, Dowling believes it has already started to happen. Last November, Bank of Ireland introduced an arrangement which allows it to increase the interest rate on the tracker mortgages of some of its Irish buy-to-let customers by 1 per cent. "Where certain buy-to-let customers wish to change the terms and conditions of their tracker mortgage contract, they will be offered a variable rate – which would be equivalent to their current rate plus 1 per cent," said a spokeswoman for the bank.

Dowling said he is "very concerned" about Bank of Ireland's move to increase the interest rate on the tracker mortgages of some of its buy-to-let mortgage customers. "The principle of this is worrying," said Dowling.

Although investors rarely get the sympathy that homeowners do when they run into trouble with their mortgage, many of today's investors include homeowners in negative equity who have been forced to rent out rather than sell their homes.

Whether you are an investor or a homeowner struggling to repay your mortgage, you could soon find yourself under pressure from your bank to give up your valuable tracker.

So are there any instances when it might be worthwhile giving up your tracker?

"Anyone who can afford to pay their mortgage should stay on their tracker at all costs," said Ciaran Phelan, chief executive of the Irish Brokers Association. "However, if you can't afford your mortgage and you can reduce your debt to a more sustainable level by giving up your tracker, it may make sense to do so – but only if the bank is willing to write down 20 per cent to 30 per cent of your mortgage debt."

If you are an investor and struggling to repay your mortgage, you could find it more affordable to repay only the interest each month – as opposed to repaying the interest as well as the capital (the original amount borrowed). In such a case, it could make sense to give up your tracker, according to Karl Deeter, compliance manager with the Irish Mortgage Brokers. If you are going down this avenue however, you should first see if you can secure an interest-only mortgage without giving up your tracker.

"On regular homeloans, it only makes sense to give up your tracker if you're getting some fairly massive deal," said Deeter. "As the market stands, that would require a significant debt reduction on capital owed on the homeloan. Trackers are such a good product that only where investors are forced to do so, or where there is some good incentive for homeowners, does it make any sense to give them up."

Irish Independent