Key Post Should borrowers with trackers consider fixing?

[Sarenco]

It seems increasingly likely that we are going to see a series of rate hikes by the ECB in the near future.

According to Philip Lane, ECB chief economist - "I think it’s clear that at some point we’re going to be moving rates, not just once, but over time, in a sequence."

If the ECB raise the main refi rate by a cumulative 2 percentage points over the next couple of years, that would triple the rate being paid on the average tracker mortgage to 3.00%.

Today's fixed rates of 1.90%, where available, would look very attractive in that scenario.

 

[stovesoot]

Had a tracker retention with AIB so split mortgage on new house
- tracker retention portion 2.1 (+1 as part of retention from what I recall)
- New green 5 yr fixed 2.15

So tracker will be underwater compared to fixed once ECB moves

 

[Sarenco]

Just heard Jill Kirby on the radio saying there was nothing to stop banks raising the "premium" (presume she meant margin) on tracker products.

"I don't know what a tracker is ..."

 

[NoRegretsCoyote]

If the ECB raise the main refi rate by a cumulative 2 percentage points over the next couple of years,

Not impossible, but a bit more than markets have priced in.

Today's fixed rates of 1.90%, where available, would look very attractive in that scenario.

I fully agree. If you have a hunch that rates are going to be >150bps higher for a long stretch then it's worth fixing at today's rates.

But bear in mind if policy rates are going up market rates are going up too. And if your tracker has gone up 100bps over the next year it's very likely the lowest fixed rate on offer in a year's time won't be 1.9% and more likely something like 2.5%. So wherever you are in future your tracker is probably still going to be a better deal than the best fixed rate on offer at the time. The downside is that once you give up your tracker you'll never get it back, and to me there always need to be pretty good reason for paying back the cheapest loan you will ever get.

 

[onequestiononly]

I've a 1.95% tracker. Was .95 but did a tracker portability.... 25 years left but currently on track to clear in 15 years. LTV below 60%.

I don't plan on moving, my wife has other ideas!!!

Avants 7yr @ 1.95% ,10yr @ 2.1% or 15yr @ 2.25% are probably the best options.

I am stuck overthinking it and not sure which of the 3 options to go with... 10 year probably best bet as can overpayments still and clear earlier. Tracker is hard to give up even knowing rates will go up..

 

[Brendan Burgess]

Just heard Jill Kirby on the radio saying there was nothing to stop banks raising the "premium" (presume she meant margin) on tracker products.

Hi Sarenco

I have an idea that some tracker mortgage contracts allow the lenders to increase the margin in some extreme circumstances? Perhaps that is what she was referring to?

I doubt if any lender would try it on.

Though I have a vague idea that BoI did it in the UK?

update: OK, they tried it, but reversed their decision

Bank of Ireland reverses mortgage rate increase for 1,200 borrowers

Following a review, some of the 13,500 customers told to expect a rise in the cost of their loans have had a reprieve

www.theguardian.com

Brendan

 

[Sarenco]

Not impossible, but a bit more than markets have priced in.

For sure.

Still, I think it's interesting that we've (arguably) come to a point where our default advice to hang onto a tracker for dear life may need re-visiting.

I wouldn't have seen that coming a few years ago.

 

[peemac]

I've a 1.95% tracker. Was .95 but did a tracker portability.... 25 years left but currently on track to clear in 15 years. LTV below 60%.

I don't plan on moving, my wife has other ideas!!!

Avants 7yr @ 1.95% ,10yr @ 2.1% or 15yr @ 2.25% are probably the best options.

I am stuck overthinking it and not sure which of the 3 options to go with... 10 year probably best bet as can overpayments still and clear earlier. Tracker is hard to give up even knowing rates will go up..

You've a 1.95% tracker, yet avant's standard variable rate is 2%, so the tracker has very little if any actual value to you.

I reckon anyone with a "mover" tracker that is 1.8% or higher should be looking at fixing at 2.25% or lower (or even 2.5% at 7/10 year rates)

Their 7 year rate of 1.95 is still available if you apply by next Thursday and draw down by July. If you are overpaying, then the interest costs in 7 years will be relatively low for whatever rate you go for then.

I'd be making time for a broker visit for Monday

 

[Brendan Burgess]

Whether to fix or not depends on two factors

1. the margin
2. The remaining time

On the one hand someone with 20 years left with a margin of 0.5% should not be fixing.

On the other someone with a margin of 3.35% should be fixing.

It's less obvious if you have a margin of 1.5% with 7 years remaining. You probably should fix for 7 years at 1.95%.
It's not absolutely clear. Mortgage rates in Ireland are still well above eurozone averages, so even if ECB rates rise, the actual mortgage rate in Ireland could fall. So you might be able to fix at a lower rate at some time in the future.

Brendan

 

[PebbleBeach2020]

Tracker 1.2% with 10 years remaining.

 

[skrooge]

This is a really grey area. I doubt there are many borrowers on tracker rates that can avail of a really low fixed rate from their current providers. Many of the leading rates now are from providers who weren't in the market in 2000-08. A comparison between a tracker rate and 1.9x% fixed rates needs to factor in the switching cost.

Is it worth switching provider to avail of the best fixed rates? This will really depend on your mortgage balance (and expected term). Remember that most "good" tracker mortgages were issued well over a decade a go. That's a lot of loan repayments that have flowed under the bridge. Assuming switching costs of about €1.5k you've got to think you'll save more than that in interest expenses before considering it.

Sticking with an existing provider is also an option and the answer as to whether it's a good idea may be bank specific. The greater the margin (tracker rate versus available fixed rate) the less benefit to dropping the tracker. A quick look at the 3 main banks existing customer offerings doesn't look overly appalling.

Another consideration is the relatively limited selection of fixed terms and the roll off rates you'll be faced with. There's less of a convincing argument going for a cheap (short) term fix now if you'll be faced with high rates when your cheap fix matures (though this will depend on your balance and remaining term).

 

[Raey]

Mortage rates in Ireland are still well above eurozone averages, so even if ECB rates rise, the actual mortgage rate in Ireland could fall. So you might be able to fix at a lower rate at some time in the future.

Brendan

Given the Avant rate increases announced Friday & the complete lack of competition in the Irish market, do you think this is a realistic scenario?

My gut is telling me that the spread between eurozone & Ireland will remain in step with ECB rate increases....alas, I admit I am a negative Nancy when it comes to this topic.

 

[Brendan Burgess]

My gut is telling me that the spread between eurozone & Ireland will remain in step with ECB rate increases....alas, I admit I am a negative Nancy when it comes to this topic.

Raey

You are probably right. I think that at some stage we should cop onto ourselves. But it might not be within the next 7 years.

Brendan

 

[CMaryS]

Have a tracker mortgage 9 years left. Should we opt for a green fixed mortgage or wait? Could absorb 2/300 euro extra monthly if we thought it wasn’t going to last forever

 

[NoRegretsCoyote]

Given the Avant rate increases announced Friday & the complete lack of competition in the Irish market, do you think this is a realistic scenario?

I'm not really convinced of that. Sure, two banks are leaving, but in as many years two non-bank lenders have joined.

The issue is more that full-spectrum banking is not very profitable in Ireland any more, but mortgage lending is only a part of that.

Mortgage lending itself is attractive and there is no real barrier to market entry. The prevalence of brokers means that you don't need a physical footprint either.



High interest rates are more a result of supervisory requirements. But that's another story dealt with on other threads.

 

[peemac]

Have a tracker mortgage 9 years left. Should we opt for a green fixed mortgage or wait? Could absorb 2/300 euro extra monthly if we thought it wasn’t going to last forever

Tracker 1.2% with 10 years remaining.

Most likely no in both of above assuming CMaryS is circa 1 - 1.2% tracker.

Probably both originally 25 year mortgages.

ECB will be careful not to increase too much.

The interest element of your mortgage is reducing further and further. If the original mortgage was 500k the balance is circa 200k now and reducing by about 20k a year.

So if ECB was "aggressive" and moved to 1.5% in 2 years, your balance would be 160k by then. The interest element would not be huge. Even if ECB went to 2.5%, the interest element would be about €5.5k and reducing.

As it's borderline advantage if any, probably not worth it even if rates went higher than people expect.

 

[moneymakeover]

I was part is the Aib tracker redress
i think it was back around 2015

Background: originally tracker. Fixed in 2007.

Instead of returning to tracker in 2010 I rolled onto variable rate.
Contract suggested there was an option to fix. They disputed this.
2015: they apologized,
returned the tracker
and gave maybe 10% compensation

I recently wrote to them asking if I can fix now.

In response they said if I switch to another rate I will not have the option of returning to tracker.

Not saying I necessarily want to fix, but here they go again mistreating customers.

 

[Sarenco]

Money markets are now pricing in roughly 105bps worth of ECB rate hikes by year-end.

So, if the money markets are right, the rate on an average tracker would jump from 1.00% to 2.05% by year-end.

I think if I had a tracker with a margin in excess of 1%, I would be seriously considering fixing at 2% or lower at this stage.

 

[Mrs Vimes]

If you are considering fixing for a smaller portion of the remainder of the mortgage - eg 15 years remaining, see value in fixing for 5 years, you would be then be at risk of any "SVR" the bank dreams up for the remaining 10 years.

My tracker is 0.85%, I am unlikely ever to be able to remortgage due to personal circumstances so I would not consider fixing unless I could get 2% for the 16ish years remaining.

I don't think Ulster Bank would be interested

 

[peemac]

I was part is the Aib tracker redress
i think it was back around 2015

Background: originally tracker. Fixed in 2007.

Instead of returning to tracker in 2010 I rolled onto variable rate.
Contract suggested there was an option to fix. They disputed this.
2015: they apologized,
returned the tracker
and gave maybe 10% compensation

I recently wrote to them asking if I can fix now.

In response they said if I switch to another rate I will not have the option of returning to tracker.

Not saying I necessarily want to fix, but here they go again mistreating customers.

How?
They are making absolutely clear that you will be changing the terms of the mortgage and will not be entitled to return to a tracker.

In 2006/7 banks did not make this clear. It was because this was not clear that people were returned to trackers.

Now they are telling you straight up that the move to fixed means you are giving up your right to a tracker

If anything they are being exceptionally crystal clear on the ramifications of moving from a tracker. And as such, a customer would have zero entitlement to return to a tracker when the fixed rate finished and absolutely no reason for complaint either.