Tracker Mortgage Costing Banks Money

| March 23, 2011 | 3 Comments

From The  Irish Independent .

MORTGAGE lenders are losing money on most tracker mortgages as they are costing them more to fund than they are receiving in interest income.

Around 400,000 people have tracker mortgages, with some paying rates as low as 0.75pc above the European Central Bank rate (ECB). The deal with a tracker is that it ‘tracks’ the ECB and will rise or fall by a set percentage only when the ECB rate moves.

Most tracker holders pay a margin of between 1pc and 1.25pc above the ECB rate. The margin was set when they drew down their mortgage

Mortgage Rates March 2011 Click here to compare your mortgage rate with current Market Rates.

Banks have to constantly replenish their funds.

But Permanent TSB and other Irish banks are unable to borrow in wholesale money markets and are surviving on emergency funding from the ECB, customer deposits and short and long-term funding.

Davy Stockbroker analyst Emer Lang said the Permanent’s overall costs of funds was 1.8pc, but this was being kept artificially low by emergency funding from the ECB.

If the bank was able to raise funds in the market it would be forced to pay around 4pc, Ms Lang said.

Trackers represent 60pc of AIB, Bank of Ireland and Permanent TSB’s total portfolios. Banks have found that such contracts are watertight for the borrower.

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Filed Under: Mortgage News


  1. Sheila says:

    Very good article and link to mortgage interest rates is very useful

  2. laura says:

    interest rate comparsion very useful

  3. Greg says:

    But are the banks not able to avail of the ECB interbank facilities which provide funds at 1%, my understanding is that the ECB have provided 150B of these funds already (and why they are anxios to get it back)

    Since the banks can borrow at 1%, how can a tracker mortgage which is based on the 1% with a profit margin on top be losing them money?

    This is purely an attempt to blame the tracker holders for the banks problems and enginerr a way for the state to allow thae banks to renage on those contracts. The losses being suffered could just as simply be attributed to other parts.

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