Last week started with some good news for homeowners when Ulster Bank became the first Irish lender to allow tracker mortgage holder to trade up, or down, and transfer their existing trackers to a new mortgage.
Tracker mortgages account for over half of all Irish mortgages and have become a drain on mortgage lenders, who are current paying several more times in interest on these loans than they are receiving. Tracker mortgage holders have been availing of historically low interest rates in recent years, typically paying 2 per cent, compared with the current variable rates that are in excess of 5 per cent, and they are contributing to the continued loss-making state of the Irish Banks. This new product does not apply to homeowners in negative equity or to those with arrears on their existing mortgage obligations and has been criticised by some market commentators for its lack of reach. According to a spokeswoman for Ulster Bank, the bank is currently in discussions with the Central Bank on this issue and it hopes to be able to provide a solution to tracker mortgage holders who find themselves in negative equity.
So far, Ulster Bank is the only Irish lender to allow homeowners to transfer their mortgage to another property while keeping the all-important tracker rates, however, it is likely that the main lenders will follow suit.
A recent study undertaken by the Irish Brokers Association revealed that the holder of a tracker mortgage, who wishes to repay their mortgage or switch to a variable rate, should be able to negotiate a write-down of up to 25 per cent. This is based upon the savings that would be made by the bank over the course of the original mortgage period, such are the losses suffered by the banks on these tracker mortgages in this time of historically low ECB interest rates. It was confirmed last week that the Government had entered talks with the EU/IMF lenders on possible mechanisms for transferring the loss-making trackers from two of the main lending banks, AIB and Permanent TSB to the former Anglo Irish Bank, now the Irish Bank Resolution Corporation.
Negative Equity Mortgages
For homeowners who will not benefit from the above initiative, it now appears that there may be some light at the end of the tunnel. It has been reported that AIB together with the EBS, Ulster Bank and KBC Bank will join Bank of Ireland and Permanent TSB in offering a solution to homeowners in current negative equity. In recent months, the latter two banks began offering homeowners moving on the opportunity to carry with them a portion of the negative equity remaining from their previous home. In practice, the Permanent TSB tends to facilitate buyers downsizing or trading down. Going forward, it is likely that the four other lenders mentioned will offer a similar, and perhaps extended, opportunity to transfer some level of this loss to a new property. There will be strict limits imposed by the Central Bank on the amount of negative equity carried over. It should be noted that these mortgages will only be available to the best applicants, those who can show significant earnings and repayment capacity.
This is undoubtedly the most positive move by the Irish lending banks in years. It will help tens of thousands of homeowners in negative equity and it is hoped the effect of this will be to give the property market a much needed kick-start. It will be particularly welcome to young families who find that their starter home apartment is inadequate to meet the changing needs of their growing families.
Ulster Bank will hold a free mortgage information evening at Killiney Castle Hotel on Wednesday 18th April 2012 at 6pm. They will take buyers through the mortgage application and outline all new mortgage offerings. For further information please contact the following Ulster Bank branches: Dalkey, Rochestown Avenue, Dun Laoghaire and Bray.
Carol Tallon is Author of the Irish Property Buyers Handbook 2012/2013 and Managing Director of Buyers Broker Ltd., www.buyersbroker.ie Tel: 01 4428 035 or email: firstname.lastname@example.org