What happens to tracker mortgages if the euro collapses?
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potnoodler
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I know there was a clause in my tracker with nib about which rate it would track if the ecb ceased to exist ,it would track of the central bank, that was in 2005 , no mention of no euro but can't see how it would be any different loan would convert to punt that's what hapPened when we joined
Brendan Burgess
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We are in totally unchartered territory.
My mortgage agreement (from 2002) says
It makes no mention of what happens if the ECB rate is no longer quoted.
It maks no mention of what happens if Ireland leaves the euro.
I would guess that there will be a Central Bank of Ireland rate and it will be based on that.
As Irish rates would probably be higher than ECB rates, I would much prefer the ECB rate. But given that there will be huge dislocation anyway, and that mortgage holders would generally benefit, I think that the correct solution would be to base it on the Central Bank of Ireland main refinancing rate.
My mortgage agreement (from 2002) says
It makes no mention of what happens if the ECB rate is no longer quoted.
It maks no mention of what happens if Ireland leaves the euro.
I would guess that there will be a Central Bank of Ireland rate and it will be based on that.
As Irish rates would probably be higher than ECB rates, I would much prefer the ECB rate. But given that there will be huge dislocation anyway, and that mortgage holders would generally benefit, I think that the correct solution would be to base it on the Central Bank of Ireland main refinancing rate.
Maybe if there's a total collapse (e.g. the Euro and the ECB ceases to exist), but if it persists in some form (e.g. just a core set of countries), then what you quote is quite explicit. Surely all that would happen in that case is the currency would change at some exchange rate, the same as happened when we joined to existing mortgages? In other words, you'd have a punt mortage tied to a ECB rate. Mind you, if the ECB itself went, there probably isn't any option other than to track the (Irish) central bank rate.
serotoninsid
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Firstly, thanks for posting that. However, excuse my ignorance - but what exactly does that mean in practical terms?
I don’t know, it’s suitably vague.
I would guess it means whichever rate suits them best will be deemed to be the nearest equivalent rate.
Leaving the Euro could cause people to lose their tracker mortgages
This was mentioned in passing on the news last night. It basically said that if Ireland left the euro, the banks would be under no obligation to use the ECB rate for their tracker mortgages and mortgage holders would be forced to give them up.
I was wondering is this true or is it the beginning of scare tactics to make people vote for closer european integration.
I have a tracker with a non-irish bank.
This was mentioned in passing on the news last night. It basically said that if Ireland left the euro, the banks would be under no obligation to use the ECB rate for their tracker mortgages and mortgage holders would be forced to give them up.
I was wondering is this true or is it the beginning of scare tactics to make people vote for closer european integration.
I have a tracker with a non-irish bank.
I'm pretty sure my contract says that the rate will track a different similar rate. The key will be who determines what that new rate will be. Obviously, in the interests of fairness, it should be the rate at which the bank can borrow money from whatever central bank they are answerable to but when did fairness ever come into it.
Brendan Burgess
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My feeling would be that if Ireland leaves the euro, there will have to be major structural changes and these will be decided by the government.
There would be a big rise in Irish interest rates - let's say 6%.
If the ECB rate continued to exist, and Irish trackers continued to track the ECB rate, it would mean the banks were paying 6% on deposits and charging 2% on mortgages.
As there probably would be significant inflation anyway, the real value of the mortgage liability would decline. Under the circumstances, the government would probably have to decree that mortgages were linked to the Irish Central Bank rate.
Not sure of the legality of such a move, but I suspect that if we leave the euro, there will have to be a huge amount of emergency legislation to allow the government deal with such events.
Brendan
There would be a big rise in Irish interest rates - let's say 6%.
If the ECB rate continued to exist, and Irish trackers continued to track the ECB rate, it would mean the banks were paying 6% on deposits and charging 2% on mortgages.
As there probably would be significant inflation anyway, the real value of the mortgage liability would decline. Under the circumstances, the government would probably have to decree that mortgages were linked to the Irish Central Bank rate.
Not sure of the legality of such a move, but I suspect that if we leave the euro, there will have to be a huge amount of emergency legislation to allow the government deal with such events.
Brendan
serotoninsid
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So - just to get this well and truly nailed down - there is no way that the banks could continue to base the mortgage debt on the euro (using the argument that they sourced the finance in euro)?
i.e. A mortgage with a current outstanding balance of €100K would become X amount of new Irish pounds?
I would imagine that you wouldn't lose your tracker (after all a tracker is just a fixed margin above "something", with the something at the moment being the ECB rate).
If the ECB rate ceased to exist then surely tracker mortgage holders would end up paying (say) Euribor or Libor plus the same fixed margin (i.e. the "nearest equivalent" referred to above).
Presume they could just place a levy (e.g. 2% p.a.) on tracker mortgage balances to be collected by the banks