Anyone else pi$$ed of at subsiding tracker mortgages?

Rock Steady Edy

Tracker mortgages were one of a number of features about the housing boom that allowed people to borrow more and more on the strength that property investment was seen as a one-way bet.

Other features were low interest rates on joining the Euro, longer and longer term mortgages, previously unseen salary multiples for loans, intense competition between banking institutions, dual incomes as collateral, parents encouraging their children to buy before they could no longer afford anything, significant parental donations on the back of their own properties appreciating, parental mortgage guarantees, population pressure on housing from temporary migrant workers involved in the building trade, too many seeing themselves as amateur property landlords without thinking where the future tenants were going to come from and banks not pricing this additional risk appropriately, significant interest in people wanting to use residential property as their future pension investments, a government that had no incentive to curb the whole thing because of the significant stamp duty it brought in, a regulator that had no experience in its recent past on which to tell the Irish people that the whole thing was madness, because there were so many new features about the boom that were uniquely different from the past.

One group who in retrospect I think were unfairly criticised were the Estate agents. They can only sell houses for what people are willing / have the ability to pay for them. After all, they can't sell houses now for the prices they could 3 years ago, but I'm sure they'd want to.

The signs were there before the whole thing went belly up, eg empty flats 15 miles from Dublin, the fact that mortgages requiring two people to work for many years to pay the mortgage was at odds with most people's cherished experience that only one of their parents would need to work. It was never a matter of if the collapse was going to happen, just when. A "soft-landing", in the property maket was never going to happen. Shares plummet when bad news comes out, and there was no reason to believe that it would be any different for the property market. What I am surprised by is how long it has taken for the property market to fall, compared to say the UK property crash in the late 1980s. I suspect this was due to the slow leakage of news as to how bad the situation really was, and exactly how it was going to resolve itself.

There are some optimistic signs out there, eg the increased export levels, house prices which are now pretty competitive compared to our nearest neighbour and now with much lower stamp duty, new retail outlets appearing where new lower rent agreements have been reached, a new government that enables the country to look forward and not back, and a determination that this won't ever be allowed to happen again, because we can see now that all that's happened is that we've borrowed so heavily from future taxation to pay for it.

My guess is that trackers will be repriced, as they have been in Britain, at about 3% over the base rate, instead of the previous paper-thin margins, and it'll be the foreign banks that start lending again properly when they see the property market has flattened out.

Sponge Bob

eamo12 wrote: »

This culture of entitlement has to end and burden sharing must be just that, shared.

Eamo, my position has not changed one Iota since This Post last month. You made a wrong decision if not indeed two wrong decisions so please learn to live with your wrong decisions and stop looking for a bailout!!

Iwannahurl

Rock Steady Edy wrote: »

Tracker mortgages were one of a number of features about the housing boom that allowed people to borrow more and more on the strength that property investment was seen as a one-way bet.

Other features were low interest rates on joining the Euro, longer and longer term mortgages, previously unseen salary multiples for loans, intense competition between banking institutions, dual incomes as collateral, parents encouraging their children to buy before they could no longer afford anything, significant parental donations on the back of their own properties appreciating, population pressure on housing from temporary migrant workers involved in the building trade, a government that had no incentive to curb the whole thing because of the significant stamp duty it brought in, a regulator that had no experience in its recent past on which to tell the Irish people that the whole thing was madness, because there were so many new features about the boom that were uniquely different from the past.

Good post. This is a bit OT, but I wonder about the bit in bold above. Do you mean migrant workers buying houses and helping to drive prices up? Or did their renting help to inflate the bubble?

I was a sceptic about the property bubble long before the bust, but that was probably due to my being a natural sceptic rather than a shrewd observer of the economy. However, I realised with certainty in 2007 that it was all a big confidence trick when I saw a glizy new apartment block built in the shabby chic town of Ennistymon. All the tenants at that time were Polish construction workers, their families and friends. Something had to be gravely wrong when the boom started to depend on the renting of houses and apartments to the people who were building those very houses and apartments.

Sometime around then -- I can't recall exactly when -- our LTV dropped below 50% and I switched to a Tracker. A good move, especially now that our income is down nearly 40% on what we had in 2008.

Snakeblood

Iwannahurl wrote: »

Good post. This is a bit OT, but I wonder about the bit in bold above. Do you mean migrant workers buying houses and helping to drive prices up? Or did their renting help to inflate the bubble?

I think both affect the bubble really.

BostonB

I think immigration may have prolonged the bubble, but thats all.

At the end of the day its about is sustainable.

Sponge Bob

Iwannahurl wrote: »

Good post. This is a bit OT, but I wonder about the bit in bold above.

The bit in bold is vital in understanding why the bubble continued...more than why it happened.

Demand from migrants post New Accession states on the 1st of May 2004 was used as a justification for continued construction.

There was no real demand for housing in places like Tuam and Longford until the massive flood of Poles at al came in from May 2004. This helped to reinflate the bubble in many marginal areas thereby leading to the stupendous surplus of housing in these marginal areas today.

They only came to Ireland to build and we responded by ramping up the building. We already had a huge surplus of housing by May 2004 but the arrival of another 100-200k persons in very short order prompted us to overbuild even more for some weird extrapolated future demand.

It was never a real demand, only a transient one. Gone forever.

Iwannahurl

Sponge Bob wrote: »

The bit in bold is vital in understanding why the bubble continued...more than why it happened.

Demand from migrants post New Accession states on the 1st of May 2004 was used as a justification for continued construction.

There was no real demand for housing in places like Tuam and Longford until the massive flood of Poles at al came in from May 2004. This helped to reinflate the bubble in many marginal areas thereby leading to the stupendous surplus of housing in these marginal areas today.

They only came to Ireland to build and we responded by ramping up the building. We already had a huge surplus of housing by May 2004 but the arrival of another 100-200k persons in very short order prompted us to overbuild even more for some weird extrapolated future demand.

It was never a real demand, only a transient one. Gone forever.

I knew it was bad, but TBH I was not aware that it was as bad as you describe. We bought in 2002 which I thought for a long time was comfortably outside the insanity zone.

Is that 2004 housing surplus documented in any official publications or independent analyses?

By the way, there's a rather chilling paragraph in the now famous Vanity Fair article on the Celtic Casino years that refers to the economic transience of those Accession State immigrants:

A few months after the spell was broken, the short-term parking-lot attendants at Dublin Airport noticed that their daily take had fallen. The lot appeared full; they couldn’t understand it. Then they noticed the cars never changed. They phoned the Dublin police, who in turn traced the cars to Polish construction workers, who had bought them with money borrowed from Irish banks. The migrant workers had ditched the cars and gone home. Rumor has it that a few months later the Bank of Ireland sent three collectors to Poland to see what they could get back, but they had no luck. The Poles were untraceable: but for their cars in the short-term parking lot, they might never have existed.

Sponge Bob

Iwannahurl wrote: »

I knew it was bad, but TBH I was not aware that it was as bad as you describe.

Well it was bad, the febrile bubble atmosphere was well entrenched and the media with their property supplement income constantly told us two things which two things were generally accepted.

1. Ya gotta gotta gotta get on that ladder.
2. House prices only ever go up.

We ran out of borrowers in 2004 and the banks changed the game to get some more mugs into the market.

They introduced 40 year and 100% Interest only mortgages for homeowners....after all they could not afford repayments by then and certainly not over 25 years.

The arrival of the New Accession state people was a trigger for sucking earlier generations who were well into equity into the Buy to Let market and of course they could get 100% Interest Only as well. After all rental demand was suddenly massive and you could not lose could you.

But the Poles were only the last big puff of helium into a large balloon and that is all. They also helped cause a massive BTL bubble in the UK at that time.

But nothing useful was published until early 2005 and when I read it I knew the game was up.

http://www.esri.ie/news_events/press_releases_archive/2005/the_irish_housing_stock_g/

This is the article itself , any time we had a boom in the past the number of vacant properties usually dropped but not since 1996.

http://www.esri.ie/publications/search_for_a_publication/search_results/view/index.xml?id=1660

Icepick

We are not subsidizing tracker mortgages.
We all are subsidizing criminal decisions made by bankers and politicians.

Iwannahurl

Some of us benefited from the privatised gains. Most of us are now paying dearly for the socialised losses.

With regard to that ESRI report, in hindsight was this statement (from the news release) really accurate at the time? If so, is it still true?

[T]he fact that headship rates (the proportion of the population who are heads of independent households) remain low in Ireland relative to experience elsewhere in the EU suggests that there will be a continued need for significant new building in Ireland over the coming decade. This suggests that there is a floor on how far house prices could fall in the event of a shock.

Sponge Bob

[QUOTE=Iwannahurl;71846065

[T]he fact that headship rates (the proportion of the population who are heads of independent households) remain low in Ireland relative to experience elsewhere in the EU suggests that there will be a continued need for significant new building in Ireland over the coming decade. This suggests that there is a floor on how far house prices could fall in the event of a shock.

[/QUOTE]
This is a dry euphemism for "we think there will be a lot more divorces/new households forming in future, up to the EU norm" . It did not happen.

mike kelly

Cool Mo D wrote: »

Tracker mortgages are subsidised because the interest rates they are paying on their debt is lower than the interest rates the bank paid to borrow that money on their behalf, so that banks are making a loss on tracker mortgages.

Therefore, banks are increasing their variable mortgage interest rates to claw back some of the money they are losing on the trackers.

this would be normal commercial activity were it not for the bank bail out

Iwannahurl

mike kelly wrote: »

this would be normal commercial activity were it not for the bank bail out

Correct me if I am wrong, but here is my thought process on that point.

If thiswas normal commercial activity in 'normal' times, then presumably holders of variable rate mortgages had nothing to complain about. Business was business; they made their choice and paid their money.

We are not in 'normal' times now, as evidenced by the bank bailout.

However, as citizens/residents of this state both variable rate and tracker mortgage holders are paying for the bank bailout in similar ways (pay cuts, Universal Social Charge, higher costs etc).

Therefore the playing pitch is as level as it was during the days of normal commercial activity.

The falling tide lowers all boats, but not all boats are the same?

LeViat

Iwannahurl wrote: »

The falling tide lowers all boats, but not all boats are the same?

And if the tide goes out far enough you can also see who was swimming in the nip!

Red Actor

Cool Mo D wrote: »

Tracker mortgages are subsidised because the interest rates they are paying on their debt is lower than the interest rates the bank paid to borrow that money on their behalf, so that banks are making a loss on tracker mortgages.

Therefore, banks are increasing their variable mortgage interest rates to claw back some of the money they are losing on the trackers.

/

It's not a simple matter of tracker = 2%, market rate = 5% therefore banks are losing 3%.

Not all money is borrowed. Some banks take in deposits and pay pitiful interest - I get 0.025% from BoI and that's all you'll get unless you've loadsamoney and are willing to lock it up for years. How much is swilling in current accounts that doesn't get any interest. The banks are probably losing some money on these as they can no longer rollover their finance at previous ECB rates but this is due to their actions. The banks are bleating away hoping that people will feel sorry that they're losing money on some deals - I didn't hear them complianing when they stampeeded people into 12% fixed in the early 90's and rode out the short spike and made a small fortune.

p.s. I don't think that the banks would reduce their varibale rates even if they could abolish trackers = they'd be "building up reserves" or "enhancing the balance sheet"

Rock Steady Edy

Red Actor wrote: »

/

It's not a simple matter of tracker = 2%, market rate = 5% therefore banks are losing 3%.

Not all money is borrowed. Some banks take in deposits and pay pitiful interest - I get 0.025% from BoI and that's all you'll get unless you've loadsamoney and are willing to lock it up for years. How much is swilling in current accounts that doesn't get any interest.

A very good point. Rabobank pays 2.25%, NIB pays 3% and NationwideUK pays 3% on their instant access internet accounts (with minimums of €1, €1 and €2000 respectively). You also have the added protection of being with a foreign bank, and you are paying much needed DIRT to the government too. Regular payment accounts are all around 4%pa.

You have to make the effort to move to benefit from the better rates; loyalty is rarely rewarded.

When I first came to Ireland 7 years ago, I opened a current account with the AIB. When I discovered they were going to charge me quarterly fees and pay me no interest, I promptly told them I wasn't going to put up with it, closed the account and moved to a free account with one of the foreign banks. Why would you let them help themselves to your money, month in, month out? It's the same with rates that are as good as zero; you are giving them it to borrow for practically nothing.

waffleman

Looks like this thread is more or less finished but here is an update I thought might be useful for some:

http://www.independent.ie/business/personal-finance/property-mortgages/bank-of-ireland-forced-to-put-customers-back-on-trackers-2639252.html

Now it has emerged that a review by the Central Bank found that 2,096 mortgage holders at Bank of Ireland and its mortgage subsidiary ICS were not given enough information by the bank about the cost of giving up their trackers when they sought to lock in to a fixed rate.
Compensation of up to €2,000 per customer will now be paid to those who switched from a tracker to a fixed rate and the customers will be able to return to their tracker rates.

I can't think why anyone would want to give up their tracker in the last few years but if you have this could save a few quid.

Rock Steady Edy

waffleman wrote: »

I can't think why anyone would want to give up their tracker in the last few years but if you have this could save a few quid.

I suspect what happened was that people opted to go to fixed rates from tracker rates when the ECB rates started going up in 2006, and the new mortgage agreements for the fixed rates said they would go back to a standard variable rate after the fixed period expired. Opting to go fixed for a short period is one thing, but you are severely out of pocket for a high proportion of the term if you are on standard variable rate compared to a tracker rate.

I don't think the public really started appreciating the benefits of trackers until the gap between standard variable rates and trackers started widening after the banking crisis started.