# Tracker mortgages 'put the banks into a perilous situation'



## Dearg Doom (25 Sep 2012)

Ref: http://www.breakingnews.ie/business...e-banks-into-a-perilous-situation-568160.html

You hear a lot about Tracker Mortgages being the cause of a lot of bank problems. However the idea of a tracker mortgage per se is surely not the problem i.e. the bank can borrow funds at one rate and they then loan it out to the consumer at the same rate plus a margin. The issue is that they are tracking something that isn't related to the cost of funds to the bank and/or the margin was too slim. 

What should tracker mortgages have been tracking instead of the ECB rate? Indeed is there anything you could base a tracker on that would work for both the bank and the consumer?

Is there a possibility of a mortgage product that gives a balance between value and stability of the monthly cost (e.g. 20-year fixed is very stable but very expensive, SVR is cheaper but the bank can up the cost at any time)? Something that can vary based on external factors but stops the banks ability to up their margin as it suits them?


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## ajapale (25 Sep 2012)

I made some similar observations back in May 08.

Trackers Good! SVR Bad! Any exceptions to this rule?

Back then some one suggested tracking the LIBOR but since then we have learned that (some) Banks have manipulated this rate.



Dearg Doom said:


> The issue is that they are tracking something  that isn't related to the cost of funds to the bank and/or the margin  was too slim.


 +1

aj


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## Brendan Burgess (25 Sep 2012)

I think it was the margin which was the big problem. If they had charged 3% above ECB, then the problem would be a lot less. 

In normal conditions,  the ECB rate was a good standard to measure the cost of funds by. 

The mutuals, EBS and Irish Permanent, supposedly tried to balance the interests of depositors and borrowers. But in a modern market full of rate tarts, that no longer holds. 

Brendan


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## Dearg Doom (25 Sep 2012)

So if the banks adjusted the margin and the balances to match a more viable margin, we would again have viable trackers (albeit they would have to take the hit on the balance)?

E.g. I owe €100k over 20 years at 2% (say 1% margin over an ECB rate of 1%) then my replayment is €505.88/month. This is the same as repaying 3% over an ECB rate of 1% (i.e 4% in total) on €83482. So reduce the balace and increase the margin to a viable one.

Is easier/better/worse than the talk of hiving off trackers in to Anglo/IBRC?


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## ryaner (25 Sep 2012)

The bigger problem is the SVR is a concept foreign in most countries. All across the continent, long term fixed rates are the norm. In the US/CA, lots of fixed rate mortgages also allow over payment without penalty.


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## Brendan Burgess (25 Sep 2012)

Dearg Doom said:


> So if the banks adjusted the margin and the balances to match a more viable margin, we would again have viable trackers (albeit they would have to take the hit on the balance)?
> 
> E.g. I owe €100k over 20 years at 2% (say 1% margin over an ECB rate of 1%) then my replayment is €505.88/month. This is the same as repaying 3% over an ECB rate of 1% (i.e 4% in total) on €83482. So reduce the balace and increase the margin to a viable one.
> 
> Is easier/better/worse than the talk of hiving off trackers in to Anglo/IBRC?



Hi Dearg

Yes, I have recommended this to the banks. They should offer a discount to borrowers to reprice their trackers.  

I think that the idea of hiving the trackers off to IBRC has been recognised as nonsense and dropped. 

Brendan


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## diceyreilly (12 Feb 2013)

Brendan Burgess said:


> Hi Dearg
> 
> Yes, I have recommended this to the banks. They should offer a discount to borrowers to reprice their trackers.
> 
> ...


 If not then it would be a bit difficult now !
Is there anyone with any up to date experiences of Tracker redeeming and is there signs of discounts happening.


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