Irish Times article: "Tracker mortgage holders can save by switching"

[Paul F]

Tracker mortgage holders can save by switching, says consumer finance adviser

Moneysherpa.ie claims average tracker mortgage customer could save over €5,500 by moving to the most competitive fixed rate in the market

www.irishtimes.com

Moneysherpa.ie founder Mark Coan said the figure was based on Central Bank data regarding current “average” tracker mortgage rates – the main European Central Bank (ECB) rate plus 1.15 percentage points – adjusted for recent increases by the ECB.

I would be reluctant to tell anyone with a tracker margin of 1.15% (which is pretty good) to fix their rate.

the best available four-year fixed mortgage rate product in the market, which is available at 3.17 per cent

@Mark Coan Is this figure (3.17%) the APR? Which lender and rate does it refer to?

 

[RedOnion]

I would be reluctant to tell anyone with a tracker margin of 1.15% (which is pretty good) to fix their rate.

At least not to fix for only 3 or 4 years.

 

[skrooge]

Tracker mortgage holders can save by switching, says consumer finance adviser

Moneysherpa.ie claims average tracker mortgage customer could save over €5,500 by moving to the most competitive fixed rate in the market

www.irishtimes.com

I would be reluctant to tell anyone with a tracker margin of 1.15% (which is pretty good) to fix their rate.


@Mark Coan Is this figure (3.17%) the APR? Which lender and rate does it refer to?

BOI had the lowest 4 year rate (high value-green) of 2.15% but I believe the APR is 3.7%

As for the article I doubt there are many "average" tracker mortgages out there for there ever to be clear guidance for all to follow apart from look at their own numbers and see.

Tracker margin, remaining term, balance and current mortgage provider are all variables that could change the outcome. Not to mention the outlook for ECB rates.

 

[PebbleBeach2020]

Had a tracker rare of ECB + 1.20%. gave it up and took BOI five year fixed rate of 2.90%. there's 11 years left on the mortgage so I had the tracker for 16 years so got my money's worth from it. I just couldn't take the increases anymore.

 

[Paul F]

Dominic Coyle, who wrote the article in the first post, has a follow-up article (paywalled) where he takes issue with some of the figures used by Moneysherpa in their calculations:

Stick or switch: What should tracker mortgage customers do?

On The Money: A lot of information being presented to homeowners is less than helpful

www.irishtimes.com

The first article said:

Citing Irish Central Bank data showing that the average mortgage outstanding amounts to €132,000 and has 15 years left, Moneysherpa.ie says this average homeowner could save €31 a month, reducing their regular mortgage payment from €953 to €922 by switching to the best available four-year fixed mortgage rate product in the market, which is available at 3.17 per cent.

but Friday's article says:

These are Central Bank figures so they are not wrong per se but they are not really relevant to tracker mortgage holders coming to terms with significant rising mortgage costs.

Figures available from the Central Bank show that, as of last September, the average outstanding balance on an Irish tracker loan on a family home was just under €81,500.

And given that tracker mortgages were phased out over 14 years ago – the last products were pulled in October 2008 – the average term outstanding on tracker mortgages is certainly below 15 years.

and by Coyle's reckoning:

If you assume the average length of time left on such loans is a more realistic 13 years, that figure [of saving more than €5,500] drops to slightly over €2,800.

And that’s before the legal and valuation costs incurred in switching which would amount to €1,500 or more. So yes, savings are possible but more modest.

For those on lower tracker margins – and there are many – any saving disappears as of now.

He concludes by saying:

So is it worth abandoning your tracker? There is no “one size fits all” answer. It depends on how much you owe, what interest rate you are currently paying, what alternative rates are available to you at the time you are considering the issue, how long is left on the loan and the future direction of interest rates.

To which I would add: it also depends on who your current mortgage lender is.

See this thread for further guidelines:

Key Post - Should borrowers with trackers consider fixing? (General guidelines)

It seems increasingly likely that we are going to see a series of rate hikes by the ECB in the near future. According to Philip Lane, ECB chief economist - "I think it’s clear that at some point we’re going to be moving rates, not just once, but over time, in a sequence." If the ECB raise the...

www.askaboutmoney.com

 

[RedOnion]

There are very few "average" mortgages, so using averages is about as meaningless as APRC, outside of theoretical conversations.

There are 20 / 25 year mortgages taken out in 2005, and 40 year interest only mortgages taken out in 2008, and every possible combination in between.

Some trackers are great value, and in my opinion should never be switched (60bps margin for BTLs), and others just aren't good value in any environment; I've spoken to people clinging for dear life to trackers with 2.75 to 3.25% margin, "but its a tracker".

And outside of the theory of absolute cost, there's a great security to be locking in rates long term in a period of uncertainty.

For balance, Charlie Weston had an article yesterday, with input from Padraic Kissane:

Get financial advice before ditching tracker and switching to a fixed rate, expert warns

People should not give up their tracker mortgages without having a full review of their financial circumstances carried out, an expert has warned.

www.independent.ie

 

[NoRegretsCoyote]

There are very few "average" mortgages, so using averages is about as meaningless as APRC, outside of theoretical conversations.

You are right of course that trackers came in all shapes and sizes but perhaps the term "typical" is useful here.

Having read many money makeover threads a pattern I've seen is that a large majority seem to have been taken out 2003-2007 for PPRs for 25-ish years with a 70-120bp margin, amortising of course. It is possible to construct generic advice for a "typical" case here.

The biggest issue is that this "typical" tracker mortgage balance is now into five figures and as @Paul F says the potential savings need to be weighed against the cost of switching.

 

[Mark Coan]

@Mark Coan[/USER] Is this figure (3.17%) the APR? Which lender and rate does it refer to?

Hi Paul, apologies only seeing this now. The 3.17% we used in the examples is the APRC on the AIB 4 Year rate versus the current average tracker rate of 3.65%.

On the use of 'typical examples' generally although each case is individual I think using these averages is a really useful way to illustrate options clearly, the biggest risk I see for tracker customers is that they are too slow to assess their options and therefore miss the boat by not fixing.

We have seen more trackers fixing recently, but still less than I would expect given the likely course of interest rates given there are almost a quarter of a million households still with trackers.

As Dominic pointed out in his latest article, we used the average outstanding mortgage of €135,000 and term of 15 in our analysis. We know the tracker outstanding balance is @ €81,322 from the available Central Bank data but as far as I know there is no data publicly available on the average remaining tracker term. If for comparison we use the tracker outstanding loan data with the 15 year term the savings now and under the potential ECB rate increase are shown below.

Tracker Example Fixes	Current APRC	New rate APRC	Remaining Loan	Remaining Term	Current Value		Current Repayment		New Average Repayment	Monthly Saving	Total Repayment Old	Total Repayment New	Total Saving
Average Tracker @ 2.5%	3.65%	3.17%	€81,322	15	€300,000		€587.37		€568.27	€19.10	€105,726	€102,288	€3,438
Average Tracker @ 3.0% (Feb '23)	4.15%	3.17%	€81,322	15	€300,000		€607.66		€568.27	€39.39	€109,379	€102,288	€7,091
Average Tracker @ 3.5% (March '23)	4.65%	3.17%	€81,322	15	€300,000		€628.36		€568.27	€60.09	€113,105	€102,288	€10,817

As tracker rates around the average of 1.15% vary from ECB +0.5% to +2.25%, there are lots of variations on this (plus ECB rates could of course come down in future), but the general point remains that people should check out your options and if needed seek out advice sooner rather than later.

I still don't think there is enough coverage of the potential cost/risk of mortgage holders remaining on variable/trackers to overcome the level of inertia, which may result costing households thousands at a time they are already under pressure financially.

 

[RedOnion]

I still don't think there is enough coverage of the potential cost/risk of mortgage holders remaining on variable/trackers to overcome the level of inertia, which may result costing households thousands at a time they are already under pressure financially.

Surely you know from previous experience that a lot of people just won't do anything, no matter how much attention it gets? How many times did PTSB write to customers on SVR offering to move them to cheaper MVR, and still lots never moved? Look at the thousands of customers that have stayed on SVRs with BOI even though its been cheaper for them to fix since 2014.

Sinn Fein tried to raise the possibility of providing mortgage interest relief when rates started rising, trying to make it a government issue rather than educating people to fix.

I agree with the overall idea that not all trackers are worth holding onto. And yes, people should look at options, but they need to be properly informed, not just comparing published APRCs without having any understanding of what they mean. I know regulations require the publication of APRC but used in isolation it's misleading to the lay person and will lead to bad choices.

Take AIB, <50% LTV. The current LTV variable rate used in calculation of fixed rate APRCs is 2.75%. That's 25bps over ECB rate. Do you really think AIB will lend at an average of 25bps over ECB for the remainder of the mortgage term once the fixed rate ends? Because that's what the APRC is comparing.

I think it's short sighted to consider giving up a tracker for a short term fixed rate, unless one believes competition will lead to tight margins when the fixed rate ends. All we know with certainty is that any assumptions made will be proven wrong with time.

Personally, in the absence of a crystal ball, I take a simpler view of the world. But these are the personal musings of an anonymous guy on the street.

The yield on 10 year German sovereign debt is currently 2.23%. BOI currently offer 10 year fixed rates for current customers between 3.3% and 3.5%. Would I give up a tracker to borrow at 1.1% higher than the German bund yield for the next 10 years?

 

[Mark Coan]

Hi @RedOnion, agree with a lot of the points in your post it's definitely not a slam dunk decision to fix, using the APRC isn't fool proof and every decision is case by case.

It's also true that a lot of people won't do anything no matter the attention the fix your tracker story gets, however every extra person we can get to look at their options is a win. For me it's probably more about 'activating' than educating. Educating on finance is a very high bar for people with a lot on their plate.

If we can at least activate more folks into engaging with their finances by highlighting the potential benefits, then more will seek further info and help, so hopefully ultimately make smarter choices.

I guess that's where askaboutmoney.com and the discussions on here comes in for me, it certainly helps with my own financial education

 

[RedOnion]

using the APRC isn't fool proof

This is where we disagree. APRC is outright misleading.