Should tracker mortgages be levied so that non-trackers don't subsidise them?

Not sure a Levy would work on any level.

Perhaps the TRS should start above 1.5% at a higher rate.
 
Hi Daffodils

We have had this discussion elsewhere but you seem to be assuming that performing trackers are loss making for our banks and need to be "subsidised".

If that was the case, ask yourself why our banks are not offering discounts for borrowers on trackers to repay their mortgages ahead of schedule? They're not because trackers are not loss making.

The primary reason why mortgage rates in Ireland are now high relative to other euro zone jurisdictions is the level of defaulting borrowers. Roughly one in ten mortgage borrowers here are in default - the rest of us have to carry that cost.

Fundamentally it's not more complicated then that.

Hi Sarenco,

I agree that we are paying the cost of mortgages in default, the problem is that the cost can't be passed on to tracker mortgage holders only SVR's which isn't fair...
 
While I think that variable (and fixed) rates still seem too high and should come down I still wonder if some sort of levy on cheap tracker customers should not also be part of the solution to the arrears/non sustainability problem? I could be totally wrong - but why not?

How would you pick which tracker customers. What's seems cheap to someone paying say above 4% (me) would in fact be incorrect if people on trackers overpaid for their properties in the boom times with zero deposits and long term mortgages.

You cannot compare someone on 4% SVR with someone on 1% tracker because it all depends on the mortgage term, the percentage borrowed, the amount borrowed and the timing.

For example someone borrowing now with 20% deposit over 20 years with mortgage of 4% is probably in a better position than someone who bought in 2006 with 100% mortgage based on two good salaries, with a cheap tracker over 35 years.

I now don't see any reason that banks will reduce rates further. It's quite clear that the banks need the margins higher than the Eurozone to get back on track. The real issue now it would seem to me is to sort out the deliberate defaulters.

As for the insolvency service doing anything in this regard, from the get go I was skeptical and how right it has turned out to be. More needs to be done here. An easier simpler, cost free service is what is needed. To this day I've no idea why they didn't just copy the UK model. We would have had a lot more people sorted. We only have to look at the likes of Ivan Yates to see how people can get back to being productive instead of languising in despair.
 
Hi Sarenco,

I agree that we are paying the cost of mortgages in default, the problem is that the cost can't be passed on to tracker mortgage holders only SVR's which isn't fair...
Couldn't agree more with daffodils comment about us carrying the can for defaulting mortgages. It might not say it in my contract that I have to carry the can for defaulting mortgages or for the fact that the bank's left themselves open to the large losses on trackers but the fact is theyre allowed to charge whatever they like and get away with it by abusing the clause that says rates may change from time to time. Yes after all it is a variable rate mortgage but the fact that theyre abusing this means it needs to be regulated until such time as they learn manners. This law should be one where the state can impose it on them from time to time when it's deemed they're abusing their position and only lifted when they can show they're not abusing their position anymore.
 
Couldn't agree more with daffodils comment about us carrying the can for defaulting mortgages. It might not say it in my contract that I have to carry the can for defaulting mortgages or for the fact that the bank's left themselves open to the large losses on trackers but the fact is theyre allowed to charge whatever they like and get away with it by abusing the clause that says rates may change from time to time. .

You should have been around when rates were double digits. Or when one category of mortgage holders, Irish Life were paying 17% at one stage. The truth is that all good paying customers will always be paying for the defaulters.

The only way for customers to prevent mortgage hikes is fixed rates. Long term fixes are more common on the continent.

People who feel they are being fleeced and who can afford it need to overpay their mortgages because nothing will happen on this issue for a long time yet. The state/Noonen have been left with egg on their face on the issue of mortgage rates as it's now clear they have no power, nor will they do anything on the matter other than give us hot air.
 
I have a tracker mortgage that went as high as 5.35% in Aug to Oct 2008. Why didn't SVR mortgage holders subsidize me at that time? This suggestions is simply preposterous.
As said above by Bronte the whole picture has to be looked at. Cost paid, Stamp Duty paid, term of loan etc....
 
I have a tracker mortgage that went as high as 5.35% in Aug to Oct 2008. Why didn't SVR mortgage holders subsidize me at that time? This suggestions is simply preposterous.
As said above by Bronte the whole picture has to be looked at. Cost paid, Stamp Duty paid, term of loan etc....

Yes we'd have to bring the Aug to Oct figure into it to make lots of calculations and to make it even more complicated. This whole idea is a non issue. All I see now is people fighting against each other when really there is no point. I never picked a tracker, my choice, my decision, do I regret it, no, I went with what was best for me at the time. I fixed often and generally lost out, do I regret that, nope, it is what it is. It's just swings and roundabouts. I know plenty of people on cheap trackers who are in a lot more of a mess and I'd imagine most of those in trouble are actually the cheap tracker holders. Then there's the whole bunch of people, mostly investors who purchased with no capital repayments - total madness the whole thing and we had many a debate on it on here. But years afterwards we saw the downside of all that craziness.

The economy is improving and unemployment going down so all I see is positivity on that front. But I see total chaos in relation to housing in Dublin and other cities and that will benefit me in rents in the future. Though with the election coming and the promise of free healthcare in a chaotic system and no increase in property tax and the mess of Irish water, never mind the promises of increases to civil servants and the reduction in taxes I think the government have lost the plot. Such deja vous.
 
Of course there is sympathy for svr holders being hit for higher rates but two wrongs don't make a right. The issue is the underlying problems in the Banks and the Banks seeking to recover by charging higher rates where they can, lowering deposit rates, seeking to use possibly vague contracts to get people off trackers, fees, etc etc.

If people think for one second that, were Banks theoretically in a position to raise tracker rates, they would lower svr rates then there is mass delusion and denial going on. They would not. The overwhelming evidence suggests they would simply increase the tracker rates also (higher rates, fees, lower deposit rates, etc support my comments). Look at how they are ignoring the Govt/Noonan/others. Look at the attendance by senior bank personnel at the bank inquiries, the conflicting evidence, cya, etc. They might throw a few crumbs (tiny reduction) to svr holders in the pretence that they are helping only.

This whole issue should not be a case of trackers vs svr, I hate that bandwagon (see the links above in ClubMans post as examples of the bandwagon I am talking about).

I repeat my earlier comments, and particularly the comments along that lines that any tinkering with tracker rate mortgages, levies, taxes, any of that, would have the potential to destroy the market and set the Banks back significantly. Arrears would increase, defaults, more conflict, etc. Not to mention inevitable avalanche of protests, legal cases and issues, etc.
 
Of course there is sympathy for svr holders being hit for higher rates but two wrongs don't make a right. The issue is the underlying problems in the Banks and the Banks seeking to recover by charging higher rates where they can, lowering deposit rates, seeking to use possibly vague contracts to get people off trackers, fees, etc etc.
I repeat my earlier comments, and particularly the comments along that lines that any tinkering with tracker rate mortgages, levies, taxes, any of that, would have the potential to destroy the market and set the Banks back significantly. Arrears would increase, defaults, more conflict, etc. Not to mention inevitable avalanche of protests, legal cases and issues, etc.

Totally agree with G123, you cannot punish someone retrospectively for making a good choice at a point in time.

Part of the problem in this country is changing the rules after people have invested or made a decision, like the Greens changing the Car Tax system over night in 2008 and destroyed the value of cars bought previously rather than phasing the decision in, same with Taxi Licences, Rental Interest allowances.

People need a level of certainty to save, invest, make large decisions.......................little should happen suddenly or overnight.
 
Totally agree with G123, you cannot punish someone retrospectively for making a good choice at a point in time.
I was prudent in taking out a pension early on and funding it generously.
I am being punished for that decision on an ongoing basis for several years now.
 
..... I have to carry the can for defaulting mortgages or for the fact that the bank's left themselves open to the large losses on trackers ......

Banks funding is well below even the lowest tracker rate, so they are not making huge losses, or any losses at all on trackers.

SVR are high for two reasons; to cover defaulters who's 'asset' the bank cannot sell and so the banks make health profits to make them more sellable.
 
I was prudent in taking out a pension early on and funding it generously.
I am being punished for that decision on an ongoing basis for several years now.

We all are, the deduction from private pension funds are pure robbery and cannot see why this can't be challenged under constitutional property rights or some EU rights. They actually deducted from money saved years ago.
 
I don't think sharing the cost of the mortgage market is 'a wrong'. A dysfunctional banking system is everyone's problem and not that of SVR holders only.
 
What does sharing the cost of the mortgage market mean in practice? Surely you can see its a much more complex issue than simply interest rates?

A dysfunctional banking system has many features and causes, higher rates in certain cases, over lending, over prices houses, etc.

No one on this post is saying it's the problem of the svr holders only, where did you get that idea from? No one on this post has said anything like that.

However, the topic of this post is whether tracker mortgages should be levied? That is what many of the people think is unfair or ridiculous. You can't simply look at tracker mortgages in isolation. There are a whole variety of other relevant points, prices, duration, etc.

I gave the earlier practical example of my neighbour next door buying their house for half what I paid. They have svr, I have tracker. My monthly payments are still quite a lot higher.

Should I seriously be levied a charge to allow their rate and monthly payments to be reduced and me pay more, simply because I bought a house for my family when prices were high? This would be ridiculous. It would be equally ridiculous for me to ask for them to be charged an amount to reduce my mortgage, just because I bought when prices were inflated and they bought at a different time.
 
What does sharing the cost of the mortgage market mean in practice? Surely you can see its a much more complex issue than simply interest rates?

A dysfunctional banking system has many features and causes, higher rates in certain cases, over lending, over prices houses, etc.

No one on this post is saying it's the problem of the svr holders only, where did you get that idea from? No one on this post has said anything like that.

However, the topic of this post is whether tracker mortgages should be levied? That is what many of the people think is unfair or ridiculous. You can't simply look at tracker mortgages in isolation. There are a whole variety of other relevant points, prices, duration, etc.

I gave the earlier practical example of my neighbour next door buying their house for half what I paid. They have svr, I have tracker. My monthly payments are still quite a lot higher.

Should I seriously be levied a charge to allow their rate and monthly payments to be reduced and me pay more, simply because I bought a house for my family when prices were high? This would be ridiculous. It would be equally ridiculous for me to ask for them to be charged an amount to reduce my mortgage, just because I bought when prices were inflated and they bought at a different time.
I agree with a lot of what you say but the problem is were carrying the entire can for getting the banks back to profitability when we've all already bailed them out before. No problem with carrying my share of the can but a huge problem with the amount were carrying.
 
Sarenco,

The differential in European rates and Irish rates cannot be explained by the level of defaulting borrowers alone, you know this. The margin exceeds the costs associated with the default rate. Now let us say it as it is, the Government, who own the majority share of our Irish Banks, are allowing the banks to profiteer on the backs of svr borrowers, so the banks can rebuild their capital books quickly with a view to selling them back to the market.
 
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Quote: I gave the earlier practical example of my neighbour next door buying their house for half what I paid. They have svr, I have tracker. My monthly payments are still quite a lot higher.

Should I seriously be levied a charge to allow their rate and monthly payments to be reduced and me pay more, simply because I bought a house for my family when prices were high? This would be ridiculous. It would be equally ridiculous for me to ask for them to be charged an amount to reduce my mortgage, just because I bought when prices were inflated and they bought at a different time.[/QUOTE]



This is one example but it is disingenuous to think that this is the most representative one. Another equally likely possibility is that your neighbour next door bought their house for the same inflated price you did in 2008 or earlier, yet for whatever reason you finance it with a tracker mortgage, and he/she pays 1.5 as much or more monthly with SVR for the same amount borrowed. You both borrowed the same amounts, put the same down payments, same term, you have the same LTV, etc. This is not right.

I also think that many tracker holders assign their foresightedness and prudence retrospectively, after the fact, as in "we signed the contract because we exercised financial savvyness at the time and why should the SVR holders complain after the fact". But in most cases it was just damn luck and other customers did not avail of it not because they were not savvy enough but because they were either locked in their fixed mortgages at the time or tracker mortgages were not offered to them.


I speak about myself of course. When the bank offered us SVR in 2008, they said SVR and trackers always covaried in the past and the difference was purely legalistic. I took the product based on an understanding that SVR reflects prevailing interest rates and funding costs and what have you, i.e., that it is different from the fixed rate. "Variable" means that it "varies." So I thought when the rates are low I would be able to pay extra to reduce the principal and when the rates are high I would soldier on, that it would be different from the fixed rate. Certainly, if the bank called it a "standard arbitrary rate" I would have picked on arbitrary, noticed it. Retrospectively, people taking SVR mortgages in 2015 now know what it entails, but it was not clear at all back in 2008.

If one group in society pays at the rate of 4-5% at the time when another pays 0.5-2%, and the assignment into groups was by a lottery for all intents and purposes, what do you do? Keep silent waiting for a miraculous new entry into the market that would miraculously spur competition and reduce rates? That entry would simply cherry-pick good LTV customers from the existing banks leaving the rest at the mercy of the same banks.


If a levy on tracker mortgages is a no go, and the government does not go after defaulters, what is to be done about this high SVR then? The relationship is endogenous like they say in economics, that is a high SVR contributes to the rate of defaults also, not only the other way around.


And that BOI's Boucher has just made another gibberish comment again that "We look at our mortgage portfolio and the lesson of the past is that customer repayment capacity is impacted by income and absolute level of repayments, and taking out a fixed-rate mortgage mitigates the risk of repayments going up." But surely customer repayment capacity improves if the bank passes a lower SVR rate so that very customer can overpay and reduce the principal while the rates are historically low. To me his words are nonsensical.
 
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The title of this thread doesn't make any sense in my opinion. Performing trackers are no longer loss making for lenders so they don't need to "subsidised" by any other bank product.

In any event, the idea that one bank product should be "levied" to lower the cost of another bank product is bizarre. Should fixed rate loans be levied to lower the cost of variable rate loans, or vice versa? Should variable rate mortgages be levied to lower the cost of credit card debt? What about differences in rates between institutions?

This suggestion really makes no practical sense.
 
Certainly, it may make no sense in a well performing market economy and your examples are valid. But the bank officials themselves justify the high costs of SVR by referring to the loss-making tracker mortgages. In a series of meetings with Noonan this argument appeared time and again. The implicit logic here is that the very high SVR is partly (certainly not fully) determined by a very low tracker rate. We did not make it up. If it concerned some other product with a shorter term, e.g., car loan, credit cards, etc, then it would not have been such a big deal, some people lose, other win over 3-5 years. Mortgages however are for 25-35 years. Irrespective of the farsightedness of tracker-mortgage holders that opted for that product in the good boom times, since there are so many tracker mortgage holders vis-a-vis SVR/fixed customers, there exists an absurd economic situation where half of the people who may have similar LTV, job security and other actuarial risks, pay much less for the same products than another half. And, again, not for 3-5 years but effectively for life. Surely this is not right?
 
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