# Tracker Mortgages being discontinued



## LDFerguson (10 Dec 2007)

Lots of changes in the mortgage market at the moment.  One of last week's most interesting is Permanent TSB's effective withdrawal from selling tracker mortgages.  From their release...

"While our tracker products will still track the ECB, we will no longer include a specific price promise regarding the rate that they mature to after Year 1."

Which in effect is no longer a Tracker Mortgage in the true sense.

I hasten to add that this only applies to *new* mortgage applications and that existing tracker agreements will be honoured.  Reason cited is the cost of funds.  

I wonder will other lenders follow suit and withdraw their tracker products.


----------



## ClubMan (10 Dec 2007)

Seems odd. So they are reverting to standard variable loans in effect? Wonder why they didn't just stick with tracker but up the margin or something?


----------



## LDFerguson (10 Dec 2007)

ClubMan said:


> Seems odd. So they are reverting to standard variable loans in effect? Wonder why they didn't just stick with tracker but up the margin or something?


 
Yeah Ulster Bank and First Active have increased the margin on some of their tracker products but PTSB are the first to withdraw them altogether.  Though their release was carefully worded so that it refers to "changes to tracker products" which is inaccurate in this context.


----------



## Mortgageman (10 Dec 2007)

Hi Liam

Do you know what they will put on the loan contract? and what APR they will have to quote? Obviously a "go to" rate must be quoted on the contract to keep it legal - is it a case that they will use their std variable as teh official go to rate while allowing clients to apply for the bext prevailing tracker rate at the end of the 1 year period? If so, the APR to be quoted will be massive approx 5.3% - whats your takeon it?


----------



## LDFerguson (21 Dec 2007)

The credit crunch appears to be biting more Irish lenders of recent times.  Since I started this thread, IIB have withdrawn their ECB + 0.75% tracker rate and now Bank of Scotland / Halifax have advised that they will be reviewing their rates in January.  AIB are increasing their Standard Variable Rate.  

At the very least, any mortgage customers currently on Standard Variable Rates should contact their lender *today* to see if they can be put on a better tracker variable rate.


----------



## Protocol (21 Dec 2007)

Yes, indeed, due to the rise in interbank lending rates, tracker mortgage profits are cut.

Example: traditionally, with a 4% ECB base rate, the 3-month interbank rate EURIBOR would be about 4.15-4.20%.

But in the past 6 months, the spread over the base rate has widened to 60-80, even 100 basis points, i.e. the EURIBOR rate is 4.8%.

This puts all banks under strain.

Their funding costs have risen, yet as the tracker mortgage is tied to the ECB rate, their profit margin is eroded.

I have a tracker at ECB + 0.50% from NIB.  That must be a loss-making loan for them now.


----------



## LDFerguson (21 Dec 2007)

> I have a tracker at ECB + 0.50% from NIB. That must be a loss-making loan for them now.


 
They may be able to fund much of their residential mortgage book from their own deposits, but I presume this can't continue indefinitely.  I don't know what percentage of NIB's loan book is funded from its deposit base.  

I'm surprised there hasn't been a stampede to NIB to switch to ECB + 0.5% while you still can.


----------



## RainyDay (21 Dec 2007)

Shepahoy said:


> This may seem like a silly questions.
> 
> I am on a tracker mortgage with UB for past 2 years. Are they now increasing the rate?  Can they do that?  I thought they couldn't do that...



As the ECB rate increases (as it has done steadily over the last 18 months), the ultimate effect for the customer is that the mortgage rate indeed does increase.

The tracker margin has not changed, but the underlying ECB rate increase has resulted in an increase for the customer.


----------



## CCOVICH (22 Dec 2007)

RainyDay said:


> The tracker margin has not changed, but the underlying ECB rate increase has resulted in an increase for the customer.



There has been no increase in the ECB rate since June.  The margins charged on trackers are in fact increasing.

This is due to the fact that even though the rate charged to the customer is based on the ECB rate, the cost of funds for the lender is closer to money market rates, which have been increasing independently of the ECB rate, and to a larger degree than has been experienced in the past (see Protocol's post above).  So margins are being increased to compensate for this increased cost for the lender.

The margin on new tracker business is being increased.  I'm not aware that anyone who has a current mortgage will find the margin increased-whether or not the lender is free to do that will depend on the terms of their mortgage.

Of course the next time there is a change in the ECB rate, the tracker rate wil also move by a corresponding amount.


----------



## twofor1 (22 Dec 2007)

Checked my T&C's for NIB Tracker, rate is ECB + .5%, to maintain this rate for duration of loan you must maintain the free current A/c and keep the property as your PPR. In my case anyway I dont think they can get out of it.


----------



## LDFerguson (23 Dec 2007)

In case there's any confusion...


Any existing tracker mortgages are highly unlikely to be affected at all by the credit crunch. If you're already on a tracker rate of ECB + 0.5% or ECB + 0.75% or whatever, you will stay on this rate and the only change to your repayments will be the next time the ECB changes the base rate up or down.
Many lenders are withdrawing or amending some of their tracker deals for NEW customers. So it seems that some of the best tracker deals available in 2007 will not be available for NEW mortgages in 2008.
Existing mortgage customers who are NOT already on a tracker variable rate, e.g. those who are on a standard variable rate may see their repayment increase, regardless of what the ECB do. A standard variable rate can be amended at the lender's discretion. Such peple should move QUICKLY to obtain a tracker rate, in my opinion.


----------



## CCOVICH (23 Dec 2007)

LDFerguson said:


> Any existing tracker mortgages are highly unlikely to be affected at all by the credit crunch.



Hi Liam

Is this view based on:

(a) lenders cannot vary margins on existing business; or
(b) it would cause uproar/lead to huge negative publicity etc.

or something else?


----------



## LDFerguson (23 Dec 2007)

Most tracker mortgages I've seen contain a legally-binding clause that means the lender simply cannot increase the margin.  However a few have "get-out" clauses buried in the small print or the loan offer, such as the ability to switch from tracking the ECB to tracking Euribor in "exceptional circumstances".  That said, I'd imagine that lenders would be very reluctant to invoke such clauses due to the negative publicity that would surely result.


----------



## CCOVICH (23 Dec 2007)

Thanks-if prevailing conditions continue for a prolonged period, it will be very interesting to see if someone bites the bullet and increases margins on existing business.


----------



## TonyD (24 Dec 2007)

LDFerguson said:


> A standard variable rate can be amended at the lender's discretion. Such peple should move QUICKLY to obtain a tracker rate, in my opinion.


 
The standard variable tends to be the highest rate a bank offers.

This is most important advice one can take, how people can sit on rates off 5.59% + amazes me, get onto your bank and are guaranteed to get a better rate.


----------

