Tracker mortgage holders might be benefitting from a series of ECB rate cuts at present but it is also preventing them from moving property, it has been revealed.
Unlike those on variable mortgage rates, who have to sweat it out to see whether their banks pass on any savings to them, the 400,000 tracker mortgage holders in Ireland are automatically passed on any rate cuts from the European Central Bank. This month and last month the ECB cut rates by 0.25% and are expected to follow suit with another cut next month, which would bring the base rate to an historic low of 0.75%.
However, while tracker mortgage holders are often the envy of their variable mortgage counterparts, it isn’t always all it is cracked up to be if they are considering a trade up or down.
Banks and building societies are understood to be refusing to transfer tracker mortgages if the customers wants to move house, even if the new property costs the same or less than the original home on which the tracker mortgage was approved.
Instead they are being told they must pay off the tracker and go on to a new variable-rate mortgage.
The difference in monthly repayments between a tracker and a variable rate mortgage can be significant. If a mortgage holder who has borrowed €250,000 over 30 years on their original tracker mortgage transfers to a variable rate mortgage for the same amount, they will have to pay a minimum of an extra €300 a month depending on the rate of the financial institution they are dealing with.
While not a massive factor in the slowdown of the property sector, the fact tracker mortgage holders would have to give up their blue-chip loans to move house is definitely a disincentive to buy a new home.
Banks are completely within their rights to insist on the move, however, with a contract of an existing tracker mortgage taken out against a particular property.
Nevertheless that could mean that tracker mortgage holders could be effectively trapped in their current homes due to budget constraints long after those currently in negative equity on variable rates have seen market conditions improve.
