I've heard it few times in the media now that banks are losing money on their tracker mortgages. Pantomine-like, the banks are portraying the tracker mortgage holders as the baddies (boo! hiss!) and the poor variable mortgage holders are having to pay more to subsidise them. The Irish media are repeating this but I haven't seen any objective explanations as to why this is the case.
Now, I'm no expert but I'd imagine that one of the reasons that Irish banks are pushing up variable rates is because they are broke and no-one will lend them (the banks) money at reasonable rates because of the their current basket-case status due to a decade-long orgy of irrresponsible and wreckless business practices.
But leaving all that aside, is it true that banks are losing money on tracker rates? How does this work? Obviously, when you draw down the mortgage, be it tracker or otherwise, you receive the full sum of the mortgage at the start. Assuming the bank borrow this money elsewhere, what relationship is there between the rate that the bank pays and what the mortgage holder pays?
I would have thought if someone has a tracker of, say, ECB + 1% then the bank had borrowed this on a tracker (or whatever the equivalent is for a bank borrowing money) at a rate of ECB + 0.75% (or some other sum less than 1%). Similarly, if a bank sells a variable mortgage at x%, it (the bank) would borrow that money from somewhere else at a varibale rate of something smaller than x% - is this the case? Does anyone know how this works?
Are they actually losing money on trackers? Or are they just not making as much on them as they would like?
Now, I'm no expert but I'd imagine that one of the reasons that Irish banks are pushing up variable rates is because they are broke and no-one will lend them (the banks) money at reasonable rates because of the their current basket-case status due to a decade-long orgy of irrresponsible and wreckless business practices.
But leaving all that aside, is it true that banks are losing money on tracker rates? How does this work? Obviously, when you draw down the mortgage, be it tracker or otherwise, you receive the full sum of the mortgage at the start. Assuming the bank borrow this money elsewhere, what relationship is there between the rate that the bank pays and what the mortgage holder pays?
I would have thought if someone has a tracker of, say, ECB + 1% then the bank had borrowed this on a tracker (or whatever the equivalent is for a bank borrowing money) at a rate of ECB + 0.75% (or some other sum less than 1%). Similarly, if a bank sells a variable mortgage at x%, it (the bank) would borrow that money from somewhere else at a varibale rate of something smaller than x% - is this the case? Does anyone know how this works?
Are they actually losing money on trackers? Or are they just not making as much on them as they would like?