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Gap widens between variable and tracker mortgages

MORTGAGE holders who have a variable interest rate are paying far more than those on a tracker mortgage, and the problem is getting worse, the Central Bank said yesterday.

The bank calculated that the average rate for a tracker mortgage was two percentage points lower than the average rate for a variable mortgage.

Banks cannot change tracker rates, which are linked to the rates charged by the European Central Bank, but they can change variable mortgages.

Banks often struggle to make money on tracker mortgages and raise variable rates to make money lost on trackers, the Central Bank said.

There was almost no difference until the banking bust began in 2008.

Frank Conway of Dublin-based Money Coach said the difference charged on a €250,000 mortgage could easily amount to more than €3,240 a year.

Mr Conway calculated that somebody paying back a €250,000 mortgage over 30 years would usually pay around €924 a month if they had a standard tracker mortgage that charged one percentage point more than the ECB rate.

Somebody paying back the same amount on a 4pc variable mortgage would repay €1,194 a month.

Many variable mortgages are much higher than this.

Tracker mortgages were popular during the boom, when they accounted for three-quarters of all mortgages, but are now rarely sold to homebuyers, who are being forced to borrow using variable mortgages instead.

The Central Bank report blamed lack of competition for the lack of tracker mortgages.

The Central Bank added that variable-rate mortgages accounted for about one-third of all the money borrowed to buy houses and about half of all mortgages.

Variable-rate loans tended to be older loans dating from before 2000 with smaller loan balances, the research showed.

The average balance on an owner-occupier, variable-rate mortgage was €90,000, or around half the average balance on a tracker mortgage, it added.

The Central Bank said the higher cost of borrowing and the closure of banks were two of the main reasons for the decline in tracker mortgages.

Irish Independent