Banks told to spell out cost of switching mortgage
BANKS have been ordered to spell out how much it will cost a customer if they give up their tracker mortgage.
New rules have been laid down by the Central Bank and Financial Regulator to prevent mortgage holders losing out if they switch their mortgage.
Tracker mortgages are the cheapest mortgage on the market as the banks are unable to hike the rates at will.
The mortgage rate 'tracks' the rate from European Central Bank (ECB) and is at a set percentage above the base ECB rate. The base rate has been at a record low of 1pc for 15 months in a row.
The Central Bank and Regulator yesterday released details of a survey of Irish banks during 2008 and 2009.
The banks were asked to provide details of mortgage switchers -- and were found to be failing to give customers enough information on how much it would cost them to give up their tracker mortgage.
From now on, banks must give a breakdown of the financial implications of switching. The Central Bank is also considering ordering lenders to implement a cooling-off period for switchers.
"The examination found that in some cases communication on the financial implications and consequences of switching were not fully transparent to the customer," a statement from the Central Bank said
"As a result of this finding, mortgage lenders have been requested to fully disclose the impact of any switch from a tracker-mortgage rate, with immediate effect."
Frank Conway of the Irish Mortgage Corporation said while mortgage holders are aware of the value of tracker mortgages, the new rules will put them on an even stronger footing.
"Most customers have a solid understanding that they shouldn't give up their tracker. But now the regulator is keeping the banks under a close watch to make sure they're notifying the customer of all the ramifications of giving up their tracker."
An estimated 400,000 mortgage holders have trackers, with the average rate at ECB plus 1pc. This means that someone with this type of tracker is paying interest of 2pc on their mortgage. On this rate, a family with a €300,000 mortgage over 30 years will have seen their monthly repayments plunge from €1,633 in 2008, when ECB rates were 4.25pc, to around €1,100 a month.
The indications are that the ECB will hold its rate steady at 1pc, at least until next summer.