Why are tracker rates so much lower than variable ?

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CmTaz

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I can't get my head around the concept of tracker rates being so much lower than variable interest rates. I fully understand the concept of tracker rates and that they go up as soon as the ecb put's theirs up but surely the banks will eventually follow suit with their variable rates as well to protect their margins ?

Am I missing out on a disadvantage to the consumer of a tracker rate ?
 
Are all most or all trackers actually much lower than standard variable rates at the moment? In any case standard variable rates may be higher simply because the lender knows that they can charge higher margins and many punters will, through ignorance or inertia, just pay them. In general a low margin tracker will be a better long term bet on minimising interest costs than a standard variable rate where there is no margin guarantee.
 
Is it possible that its a hedge for the banks against their margins being squeezed in the years ahead by the possibility of increased competition from not only domestic competitors, but from across Europe too once (if?) the Services Directive becomes law.

How do Irish tracker rates compare with variable rates available in other Eurozone countries? This may give a better indication as to why they're cheaper than current Irish variable rates.
 
CmTaz said:
I can't get my head around the concept of tracker rates being so much lower than variable interest rates. I fully understand the concept of tracker rates and that they go up as soon as the ecb put's theirs up but surely the banks will eventually follow suit with their variable rates as well to protect their margins ?

Am I missing out on a disadvantage to the consumer of a tracker rate ?
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No disadvantage to the consumer in having a tracker over a variable mortgage. Presumably the trackers are lower because, historically anyway, they were only given to people with lower LTV ratios (less than 80% in the case of BOS originally but that may well have changed ) .Similarly I would expect in general to get a better tracker rate if my LTV was <60% than if it was between 60 and 80%.
 
I can think of 2 reasons why urrently they encourage us to take the tracker.
1) In time to come the margin may be less than what it is now i.e it might be just .5% above ECB but you will be locked into a tracker.
2) The tracker will rise immediately with interest rate hikes. The bank in time might decide not to charge the rise until a few months down the road to keep business.
However unlikely these scenarios are they could happen. Remember when everyone said 'Imagine actually paying for water like they do in France' ...
 
If variable rates are squeezed to such an extent that they become better value than trackers then those on trackers will move their mortgages to variable mortgages - if they put in the effort.
 
Past30Now said:
If variable rates are squeezed to such an extent that they become better value than trackers then those on trackers will move their mortgages to variable mortgages - if they put in the effort.
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True, but how many people out there could already be getting a better deal on their mortgage if they shopped around today?
 
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