Tuesday 12 December 2017

How many more of us have been tricked off our trackers?

Last month, after a six-year legal and regulatory battle, Permanent TSB (PTSB) was finally forced to come out with its hands up and admit that it had misled almost 1,400 customers into giving up their tracker mortgages.

As a result of the bank's practices, at least 22 PTSB customers lost their homes.

The tracker scandal is expected to cost PTSB at least €35m in compensation to customers and a further €20m in Central Bank fines.

However, PTSB boss Jeremy Masding has refused to quit, arguing that the affair happened before he became chief executive in 2012.

In the weeks since the PTSB climbdown it has become increasingly apparent that PTSB was not an isolated rogue bank and that the problems with trackers are systemic - i.e. most of the banks are engaging in similar sharp practice.

It's not difficult to see why the banks would like to shift mortgage customers off trackers.

With a tracker mortgage the interest rate paid by the borrower is capped at a fixed margin, usually either 0.75pc or 1pc, over official ECB rates.

With the official ECB rate currently standing at just 0.05pc this means that any homeowner lucky enough to have a tracker mortgage is paying an interest rate of only 0.8pc-1.05pc.

Meanwhile, Bank of Ireland charges its variable rate mortgage customers 4.6pc, while AIB's variable rate is 4.07pc.

What this means is that a customer on a 25-year, €200,000 tracker at 1pc over official ECB rates is paying €757 per month. Meanwhile, a variable rate AIB customer who has borrowed the same amount with the same repayment period is paying €1,055 per month - with a Bank of Ireland customer on the variable rate above paying €1,112.


The AIB variable rate customer will pay €3,576 more per year and the Bank of Ireland one €4,260 more per year.

No wonder the banks are so keen to move mortgage customers off trackers and onto variable rate home-loans.

Over the weekend it emerged that New Beginnings, which represents mortgage borrowers, is suing AIB on behalf of a customer who claims that he or she should have been offered a tracker when their fixed-rate period expired.

The fact that the allegations being made against AIB are so similar to those which had previously been made against PTSB may well debunk a 'one rogue bank' theory.

Meanwhile, Bank of Ireland has denied that it is being investigated by the Central Bank over letters it sent to tracker mortgage customers telling them of its fixed mortgage rates without also informing them of the costs of giving up a tracker.

"The letters are not the subject of a Central Bank investigation," a Bank of Ireland spokeswoman said.

While we have no reason to doubt the veracity of Bank of Ireland's denial, what is indisputable is that the Central Bank launched an industry-wide probe of tracker mortgages in the wake of the PTSB debacle.

"As part of the Central Bank's supervisory engagement with firms, where issues are identified, including tracker-related issues, they are considered from a wider industry perspective," the Bank said in a statement earlier this month.

"We are looking at some tracker-related issues but are not in a position to comment on our supervisory engagement," it added.

So why are the banks behaving like a bunch of, well, complete bankers when it comes to tracker mortgages?

Such mortgages are a legacy of the Celtic Tiger era when Irish banks could borrow virtually unlimited amounts from mainland European banks at or close to official ECB rates.

Those days are long gone but the tracker contracts remain in force, with the latest Central Bank figures showing that 47pc of all mortgaged owner-occupied properties and 68pc of buy-to-lets on trackers.

Any homeowner lucky enough to have a tracker should hang to it for dear life, no matter what the banks tell them.

To paraphrase the advice of the great 19th century nationalist leader Charles Stewart Parnell: keep a firm grip on your trackers.

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