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
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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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