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Be prepared for the tracker offer you can't refuse

This week, a group of Permanent TSB borrowers with tracker mortgages announced that they were going to sue the bank.

The borrowers, who have interest-only loans which were used to purchase rental properties, allege that the Permo unilaterally sought to terminate the interest-only period of their mortgages and force them to give up their trackers.

But surely, whatever the legal niceties, the Permo's move only applies to buy-to-let investors. These are big boys and they can look after themselves. Under the Financial Regulator's code of practice, to which all of the Irish-owned banks including the Permo have signed up, lenders can't force homeowners to give up their trackers.

It might be a good idea for homeowners not to be so complacent.


Yes, it's true that neither the Permo nor any of the other Irish-owned banks has taken any steps to force financially-strapped homeowners to give up their tracker mortgages, which are in any event protected by the code of practice.

However, this can't disguise the fact that the banks are losing an absolute fortune on tracker mortgages, where interest rates are capped at a fixed margin, usually either 0.75pc or 1pc over official ECB rates. Tracker mortgages account for almost 60pc of the Irish banks, €98bn of Irish mortgages.

Unfortunately, it's been a long time since Irish banks were able to borrow from other banks at anything close to official ECB rates.

They have also had to pay way over the odds for customer deposits.

Even after this month's rate increase by the ECB, most customers with tracker mortgages are paying only 2pc-2.25pc interest rates.

By comparison, even when they can persuade other banks to lend to them, the Irish-owned banks are having to borrow money at up to 7pc. This means that the banks are losing at least 3pc a year on tracker mortgages.

Given that they have a total of €55bn-€60bn of tracker mortgages on their books, that translates into annual losses of somewhere between €1.65bn and €1.8bn before any allowance is made for arrears or defaults.

Since last November the Permo has been writing to those of its buy-to-let customers on interest-only tracker mortgages informing them that unless they switch to capital and interest repayments they will lose their trackers. This could result in huge increases in their monthly repayments.

The Permo's variable rate will rise to 5.44pc next month.


Walter Odlum, the solicitor acting for some of the Permo's buy-to-let borrowers, claims that forcing them to either switch to interest and capital repayments or give up their tracker represents a breach of contract on the bank's part.

Barring a last-minute climbdown on the Permo's part, the dispute is almost certainly headed for the courts.

So far none of the other banks have followed Permanent TSB's example. However, with all of the banks' tracker mortgages being heavily loss- making, they are keeping a very close eye on developments. Is Permanent TSB's move against its buy-to-let borrowers the precursor for similar action against homeowners with trackers?

For tens of thousands of financially strapped borrowers already stuck in negative equity, being forced to give up their tracker would be the last straw.

A rise in their interest rate from 2.25pc to 5.44pc would cost an extra €182 per month for every €100,000 borrowed over 30 years.

In practice, Permanent TSB and the other banks are likely to wait for the courts to decide on the current dispute before making any move against homeowners with tracker mortgages. But if the Permo wins its legal battle then homeowners with trackers are likely to be getting offers that they can't refuse from their lenders.

Are you under pressure to ditch your tracker? Contact Dan