Are tracker loans profitable after all?

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Gerry Canning

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Ashambles/Brendan;

Once a tracker is set up and paying , even at a low rate , do banks lose money or is it more that they do not make money?

Any defaulting mortgage tracker/fixed/variable is surely where losses are.
 
Gerry Canning said:
Ashambles/Brendan;

Once a tracker is set up and paying , even at a low rate , do banks lose money or is it more that they do not make money?

Any defaulting mortgage tracker/fixed/variable is surely where losses are.
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I have always wondered about this.

When a bank issued a tracker at ECB +1% or whatever back in the day, presumably it was profitable for them at the time, why is it no longer profitable. They must have been able to get the money at ECB +0.5% (or some value less than 1)

I understand that the banks did not lock in the finance for the loans for the full period, either on a loan by loan basis or some suitable regular basis.

This seems completely irresponsible to me. I am sure I was no more that 20 when I was first told about the importance of matching the maturities of your liabilities with your assets.

Can someone with more knowledge explain.
 
Hi Gerry

I moved your question here, as I think it raises a very important point, which has huge implications for lenders and borrowers.

I have always figured out that trackers were making huge losses, because the lenders could lend the money at 4.5% instead of, at say, 1.5%, so they were losing 3%.

But I was wrong. I had not realised that the cost of funds had fallen so low. As of now, the blended cost of funds for the main banks is probably below 1%. They can borrow from the ECB at 0.15% at present. So if they are borrowing at 0.15% and lending at 1.5%, they are profitable, or not making much losses.

In the immediate aftermath of the financial crisis, they were losing big time on trackers, as deposits were costing them such huge amounts. But even still, they were able to get money at the ECB rate, so maybe they weren't.
 
Which explain why the banks are so slow and in all probability won’t do deals with people to encourage them to give up there tracker.
But is it not the case that if the banks encourage me to give up my tracker, so put me back on variable rate, say 4.5% in return for an agreed right down of some of the loan, and then let me pay off some of the remaining loan with post office savings, letting the bank loan out that money at 4.5%, then everyone’s a winner?
 
Hi all
I thought it might be interesting to let you know of a release of information recently re Bank Of Ireland shares from Cantor Fitzgerald which confirmed as stated by BOI CEO that Tracker Mortgages are no longer a drag on profits so in fact banks are making profit from Trackers just not as much as Standard Variable Rate loans. Remember Tracker Rates currently available without restriction from lenders in the UK (1.99% above base for interest only for full term and 1.39% above base for Cap and interest loans) Time for a competitor to come to Ireland again Padraic
 
Thanks for the clarity;

I had in laymans terms thought the (poor) Bank hand on trackers was overplayed.

I believe the way Banks are charging on Variable is simply wrong.

I believe that after Stress Tests in November we will see rates drop; in particular if sites such as AAM and Charlie Weston in finance sections stay on the ball.
Given that some Banks are offering (good) fixed rates , can rate drops on variable not be far behind?

If variable rates drop , it would be a positive for everyone.
 
If they do drop though, I would say it will be for new business only (and those with enough equity to move mortgage providers). I do not think variable rate drops will happen for those in negativity equity - they are effectively trapped with their current lender, and their rates.
 
Hi kaza

An interesting point. There might be more attractive new rates than existing rates, but I would say it would be marginal. If they reduce rates, they will probably bring down all rates.

I suppose that they could extend the concept of LTV pricing.
<50% LTV: 3%
.
.
,
>100% LTV 5%
 
I rang EBS about our rate SVR, currently 25% LTV - they would not even entertain a rate reduction.
 
A lot of trackers from the 2004 - 2007 period are much lower than ECB + 1%. Mine is ECB + 0.6% and I know quite a few people who took out loans in the same period who have 0.75% and 0.8% trackers. I wonder what the lowest limit is for a bank to break even? I doubt they are breaking even on mine.
 
Danske have plenty of trackers out there at 0.5% above ECB. They are in no hurry to do deals to reduce the number of these trackers so are they really losing money on them?
 
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