Any downside to Tracker Mortgage?

Quote from Irish Times article re fixing rates:

"According to Frank Conway, a director at the Irish Mortgage Corporation, about 75 per cent of mortgages are on variable rates and this is split about 60/40 between trackers and SVRs. “The most recent SVR customers. . . are caught two ways,” he says. “[They bought] at the height of the property bubble and they are now bailing out the trackers.”

SVR borrowers may be kicking themselves right now that they don’t have a tracker mortgage, but Conway says there is a misconception that trackers are always the best value. “Eventually trackers will conceivably be a bad deal,” he says."

Why would he say that? Is it because of a vested interest in churning mortgages or the potential for trackers to someday overtake fixed rates? Presumably that risk applies to all non-fixed rates and should be balanced against the whole life costs of the mortgage.

There is no way that low rate tracker can ever be a bad deal unless banks start issuing or repricing SVRs at a loss. UK banks are giving discounts to the principal amount to buy back trackers. The only amazing thing is anybody was persuaded to enter a variable rate mortgage when trackers at less than 1% above ECB were available.

It depends on what rate of tracker you have. I came off a fixed rate with PTSB this year and they had to offer us a tracker per the contract. No rate was specified so the offer was ECB + 3.25%. If the ECB goes to 4% - which it probably will - will 7.25% be better than the SVR they will be offering?

corklad said:

It depends on what rate of tracker you have. I came off a fixed rate with PTSB this year and they had to offer us a tracker per the contract. No rate was specified so the offer was ECB + 3.25%. If the ECB goes to 4% - which it probably will - will 7.25% be better than the SVR they will be offering?

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Good point.

We're in a situation now where it is inconceivable to most people that the ECB rate could be higher than a SVR mortgage rate.

Think about a scenario in a few years where there may be high inflation. ECB rate could go to 6% to counteract that leaving most good trackers on 7 to 8%

Meanwhile the banks may have got their funding in order and have a 100% loan to deposit ratio. They might only pay 2 to 3% on deposits now that they are not desperate for funding, thus enabling to make quite a good margin lending at an SVR of 6%.

But I don't see Frank's point as you can probably switch to the SVR anyway in this scenario. I also don't see the attraction of fixed rates as the terms are too short to save you from high interest rates in a few years time.