Sunday 16 June 2019

Charlie Weston: Trackers are sitting pretty but variables must change

Charlie Weston

Charlie Weston

WHO could blame people for being confused about mortgages?

These days people have all sorts of mortgages -- trackers, standard variables, loan-to-value variables and fixed rates.

The moves by Permanent TSB, AIB, Bank of Ireland and EBS to hike their rates just add to the confusion for many.

As in a lot of areas of consumer finance, the complexity costs us money.

This email is not untypical of the ones received by this journalist: "Just wondering whether you think it's a good idea to fix if you are one of those supposedly lucky ones in possession of a tracker mortgage, like myself?"

The answer is in the question.

With a tracker, the lender can only move the rate when the European Central Bank moves its rate.

Last Thursday, the ECB decided for the 11th month in a row to leave its key interest rate unchanged at a record low of 1pc.

And the indications are that the ECB is unlikely to increase from the 1pc level before the end of the year.

It could be next year before the ECB raises its rates. That means that tracker mortgage holders are sitting pretty and should do nothing.

For evidence of this we refer you to the bleatings of bankers that they are losing money on tracker mortgages and the fact that trackers are no longer available.

People with a tracker have a contract with their lender that their rate will never be more than a set percentage over the ECB rate.

Some people have trackers set as low as 0.5pc above the ECB rate. This means these lucky people will remain on an interest rate of 1.5pc until the ECB rate moves up.

Fixing

Others have trackers set at between 1pc and 2pc above the ECB rate.

In fact, trackers are such good value for consumers that we may soon see a situation where lenders attempt to buy homeowners out of these deals.

However, the mortgage holders who need to consider changing their mortgage type are those on standard variable rates.

It used to be that standard variable rates only moved when the ECB rate moved.

But Permanent TSB broke the mould on that one last summer. Now AIB, Bank of Ireland and EBS have followed its lead.

People on a standard variable rate need to consider fixing now, especially if they can lock in at a rate of less than 4pc.

Irish Independent

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