# Deals on Tracker Mortgages?????



## CnocAmhran (10 Apr 2015)

*"There is no point in approaching Bank of Ireland. They will not do a deal. They have such a low cost of funds, that tracker mortgages are not loss making for them any more - especially if they are not in arrears."*
Hi Brendan,
Regarding your comment above, are you saying if the tracker mortgage in not in arrears that the banks won't do a deal if you have a lump sum that you can put against this mortgage. Have things changed in that the last few years in that banks are now getting cheap funds from Europe that they no longer need to worry or give incentives to pay down tracker mortgages early.
Currently I have 2 tracker mortgages neither of which is in arrears; one with Bank of Scotland which is on my main residence and is Interest only for €275k, my other tracker mortgage is with PTSB on an investment property, is Capital & Interest repayments and is for 220k. There is about 15 years left on each mortgage. I currently have savings of €150k approx which is currently generating very little return.
Last year I wrote to PTSB offering to reduce my tracker mortgage by €150k if they incentivised me to do so, PTSB wrote back saying that at that time they were doing no deals for paying down tracker mortgages early. I'm not really interested in clearing down the Bank of Scotland tracker mortgage on my main residence as it is Interest only.
The question I am asking is, in your opinion has the ship sailed in relation to doing deals with banks in regards to paying down tracker mortgages early? or should I hold tough for another while? or should I look elsewhere for other investment options that will give me a better return than what I am currently getting on my savings?


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## Ballycumber (14 Apr 2015)

Brendan

I am in a very similar situation to CnocAmhran except that the bank, for both mortgages, is PTSB.  Would the same advice apply?

Many thanks


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## so-crates (16 Apr 2015)

OP, from the bank's perspective, your investment loan is a performing loan. You are making full repayments on it at the moment. Interest and capital. So the question you should ask would be what would PTSB gain from offering to discount your loan. Unless you can identify a clear gain to the bank I doubt that you will find them receptive any time soon. From the little I know, there is no major evidence of banks discounting such loans in the past, even when they were under more pressure. The BoSI loan might be a different matter since they exited the market here. 

One thing you perhaps should consider is whether you should have your investment mortgage interest only and start paying the capital off your PPI. At the moment you are treating your PPI as if it were an investment.


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## Shannonfloodplain (7 May 2015)

CnocAmhran you say that the tracker contracts are not loss making for BOI just now - this was reported yesterday, maybe it was an error: 

https://twitter.com/IndoBusiness/status/595921956207222784


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## CnocAmhran (8 May 2015)

Hi Shannonfloodplain,

Thanks for the info, it was Brendan Burgess who said tracker mortgages are not loss making for BOI any more. I hope tracker mortgages are still loss making as there may be a chance of deals at some stage down the road. I'm hoping Brendan Burgess with comment on this thread at some stage regarding my original question.


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## Clonback (8 May 2015)

Consider yourself very lucky to have a tracker mortgage.
No bank in the current climate will give you an incentive to pay down your tracker mortgage as they are making money.
You should consider putting your PDH on interest plus capital.


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## Sarenco (8 May 2015)

http://www.askaboutmoney.com/threads/are-the-lenders-losing-money-on-tracker-mortgages.193149/

I am attaching a link to a recent thread where we discussed whether or not banks are still losing money on trackers in some considerable detail.

The conclusion, in a nutshell, is that it is a myth that banks are losing money on performing trackers and I would suggest that there is zero chance at the moment that any bank would incentivise you to repay either tracker mortgage ahead of schedule.

Having said that, deposit rates have now fallen to such low levels (after you take DIRT and PRSI into account) that making accelerated capital repayments on a tracker (particularly on a PDH) may well make sense from a financial perspective.


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## Andy836 (8 May 2015)

BOI's tracker mortgage book is still costing them.

[broken link removed]

At Y/E its margin was 3bps (page 36 of the above presentation)
This 3bps "gross margin" is required to cover both (i) the risk premium, (ii) the administration costs for the book, and (iii) generate a return on its capital

While not really appropriate as this cost is based on performing mortgages.
The servicing fee under its 2008 securitization was 8bps


So, before the there has been any risk priced in, BOI is loosing a minimum of 5bps on its tracker book. 

Assuming a 1% risk premium and its losing 108bps on the book.


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## breakonthru (9 May 2015)

Excellent intelligence there Andy >



Andy836 said:


> BOI's tracker mortgage book is still costing them.



On a similar vein of 'costs' - i'd love to know what it costs a bank to reposess property and / or petition bankruptcy..

For example, what financial forcasting methods do they use when assessing 'cost' of repossession route with PDH / BTL's - that are in a negative equity and only paying interest on loans (indefinitely)?

Intelligence is Power! 
Power for the People


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## Sarenco (9 May 2015)

Andy836 said:


> BOI's tracker mortgage book is still costing them.
> 
> [broken link removed]
> 
> ...



Hi Andy

Before I dig into the figures, I want to be clear that I am simply saying that performing trackers are no longer loss making for our banks.  I am not suggesting that trackers are, or ever were, appropriately priced from a risk perspective.

The net interest margin of 3bps for 2014 that you reference is the average tracker rate at December 2014 of 112bps less the average cost of funds (annualised) to BoI during 2014 of 103bps.  However, BoI's cost of funds fell significantly during 2014 - from a period average of 115bps in H1 to 103bps in H2.  This trend has continued into 2015 and I would estimate that BoI's cost of funds today is materially lower than 100bps (the Central Bank recently estimated that bank funding costs could now be as low as 50bps based on current deposit rates).  As such, I would suggest that the current NIM on BoI's performing tracker book is  somewhere north of 10bps.

BoI may well have charged a fee of 8bps to service a securitised book of mortgages but that doesn't necessarily reflect the cost of performing this service, which presumably would be lower.  Also, the servicing arrangements (per the prospectus linked to your post) extend to dealing with non-performing mortgages within the book.  I would estimate that the costs of servicing performing trackers that BoI has retained on its balance sheet would be 2bps at most.

Putting it all together, it is clear that BoI is now generating a positive margin on its performing tracker book.  If BoI was losing money on these loans, why wouldn't they incentivise early repayment?


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## Andy836 (9 May 2015)

Sarenco said:


> Hi Andy
> 
> Before I dig into the figures, I want to be clear that I am simply saying that performing trackers are no longer loss making for our banks.  I am not suggesting that trackers are, or ever were, appropriately priced from a risk perspective.
> 
> ...



It all depends on how you define loss or profit. I have no doubt that tracker NIM will continue to grow as funding costs fall (and I've no doubt they've fallen further since Y/E). I would agree with you that performing trackers are profitable on a gross profit basis but BOI still has to cover its other operating costs (rent, staff, IT systems etc). 
Further, simply breaking even is not enough - the "profit" has to fund an acceptable return on equity and provisions. 

The linked prospectus may not have been the best example to use (the pool is populated with UK & Scottish mortgages) but I note the total arrears profile on the date of origination was 2.45% (significantly below that experienced in Ireland currently). Additionally, on top of the 8bps admin fee, there is a 2bps cash management fee. I note Ulster Banks 2006 Celtic # 11 was charging a 15bps fee.

However, I agree with you that BOI has no incentive to do deals with tracker holders. These are 20+ year products and margins are trending in their favor, as base rates rise the NIM will improve even more. Long term, these will be marginally profitable.


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## Andy836 (9 May 2015)

breakonthru said:


> Excellent intelligence there Andy >
> 
> 
> 
> ...




God knows, I dare say a hell of a lot more than they expected.


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## Sarenco (10 May 2015)

Andy836 said:


> It all depends on how you define loss or profit. I have no doubt that tracker NIM will continue to grow as funding costs fall (and I've no doubt they've fallen further since Y/E). I would agree with you that performing trackers are profitable on a gross profit basis but BOI still has to cover its other operating costs (rent, staff, IT systems etc).
> Further, simply breaking even is not enough - the "profit" has to fund an acceptable return on equity and provisions.
> 
> The linked prospectus may not have been the best example to use (the pool is populated with UK & Scottish mortgages) but I note the total arrears profile on the date of origination was 2.45% (significantly below that experienced in Ireland currently). Additionally, on top of the 8bps admin fee, there is a 2bps cash management fee. I note Ulster Banks 2006 Celtic # 11 was charging a 15bps fee.
> ...



Hi Andy

I don't think it's true that BoI are simply breaking even on their performing tracker book.  At this stage, the margin on their performing tracker book over their cost of funds could be as high as 50pbs, per the CBI's most recent figures.

I accept that performing trackers are not, at this stage, making a particularly meaningful contribution to operating costs relating to managing non-performing loans or originating new loans.  However, I would suggest that the costs of servicing a performing book of mortgages (as a sub-set of its back book) is fairly trivial.  I don't follow your argument that fees charged to service securitised mortgage books equate to the costs of servicing performing mortgages.

Again, I am simply saying that performing trackers are no longer loss making for our banks.  I am not suggesting that the NIM on such trackers is adequate to provide for losses relating to non-performing loans (including non-performing trackers) or that they provide an adequate return on equity.

In any event, I think we are agreed that BoI have no reason to incentivise the early repayment of trackers.


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