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Warning on move to hike tracker rates

PERMANENT TSB has been warned that any changes to tracker mortgages could send ordinary investors over the edge.

It is understood the bank is considering changing the interest rate terms of tracers on investment properties and second homes.

But mortgage experts have warned that this will affect thousands of people who took out interest-only trackers in order to make an investment in property. About six out of 10 of the lenders' mortgages are trackers.

Permanent TSB confirmed that it has no plans to alter the terms of tracker mortgages for homeowning tracker customers.

But it is believed the group will invoke the review clause which allows for a resetting of terms if customers do not agree to move from interest-only repayments to repayments on the capital.

Mortgage experts outlined that ordinary workers were attracted to purchase second and third investment properties with the interest-only tracker deal. They were only required to pay the interest on the mortgage and not the principal.

Now it is believed the lender will ask those to begin to repay the capital sum each month in addition to the interest on the mortgage.

An investor who borrowed €500,000 to buy an investment property, and who is currently paying €730 in interest-only payments a month, could see their repayments shoot up to €2,470 if they also have to pay back the capital every month.

This is likely to involve imposing a higher margin than 0.75pc over the ECB rate, or forcing the borrower to change to a standard variable rate, which banks are free to alter whenever they want.

Michael Dowling, from Independent Mortgage Advisers' Federation, said the move could be a serious financial strain to ordinary investors who took up the tracker mortgage offer.

"Large numbers of investors are struggling to meet the repayments at the moment, even paying interest only," he said. "This move is going to cause a lot of pain for a lot of people out there," he added.

Last week it was revealed that the European Central Bank (ECB) left its key interest rate unchanged, with analysts predicting it will now be 2012 before rates start to rise again.

It is estimated that up to 400,000 mortgage holders have tracker rates, which can only rise when the ECB decides to change its key rate.