Thousands of homeowners whose mortgages have been sold to vulture funds have no options to fix their lending rates ahead of what is expected to be a spate of European interest-rate rises.
The mortgage holders are trapped on variable rates and high-margin trackers, and now face having to pay thousands of euro in higher repayments in the coming months.
The European Central Bank (ECB) is set to start a round of interest-rate hikes from next month, with the its main refinancing rate likely to rise by 0.75 percentage points by the end of the year.
This will add around €1,000 to the annual cost of repayments on a typical variable or tracker mortgage.
Large numbers of people whose mortgages have been sold to vulture funds now find themselves trapped on mortgage rates that are set to become very expensive.
This is because vulture funds and the credit-servicing firms that administer the mortgages bought do not offer fixed rates as they are not active in the lending market.
Most mortgage holders whose loans were sold by the banks are unable to switch away from the vultures to active lenders for a variety of reasons, says consumer advocate Brendan Burgess.
Many can’t switch because they are in arrears and have a bad credit record. Others can’t switch as they have recently changed jobs, or a husband or wife may have given up work outside the home which lowers the household income.
Switching applications may also be rejected as the balance left on the mortgage is too low, or the home has mica or fire-safety issues.
Over the last few years, thousands of performing and non-performing mortgages have been sold to the funds. They are serviced by the likes of Pepper, Start, Lapithus, Cabot, Link Group and Mars Capital.
These mortgages are often owned by separate investment funds. For example, Goldman Sachs is the ultimate owners of some of the mortgages serviced by Pepper.
The mortgages sold include performing and non-performing loans, and are on tracker and variable rates. Some 85,000 family home mortgages have been sold by mainstream banks in recent years.
The vultures that ultimately own the mortgages and the firms that service them for the vultures do no operate as active lenders, so they won’t offer fixed rates.
A recent Central Bank report estimated that 54pc of the accounts sold to vultures are in long-term mortgage arrears.
Mr Burgess said: “The big argument about mortgages sold to vulture funds was that your rights were protected, but your options to fix are limited or non-existent.”
He said all the fixed rates on offer in the market at the moment are lower than the variable rates.
“People whose mortgages were sold to a vulture fund are trapped. They can’t fix, so they have no certainty about where they are going to be in three or five months from now.”
Homeowners on variables, high-margin trackers and those coming to the end of fixes, whose mortgages have not been sold, are rushing to fix at the moment.
Pepper, which services 60,000 residential mortgages on behalf of vultures, said it does not offer fixed rates.
Efforts to contact Start Mortgages were unsuccessful. There was no comment from Cabot.