banks and trackers

I wouldn't single out tracker mortgages for particular criticism, since the "tracker" only affects the interest rate and thus the repayments. It was the sheer size of the mortgage principals that was more problematic. No mortgage should be that big relative to income (5x or more), or be spread over such long periods. Who can honestly guarantee their income over the next 30 or more years?

It's worth remembering that, to the bank, a mortgage is an asset on its books. It's a cash cow that siphons money from customers in to its coffers, backed by the force of law. The bank has no incentive to voluntarily reduce its value as an asset, even if it has good reason to believe it won't get the money back. Those figures on the balance sheet represent the bank's wealth and status, they are what give other investors confidence. Writing down assets is an admission of financial failure that no bank wants to make, and they'll work to avoid it.

odd1 wrote: »

Hi all
the banks are telling us they are losing money on the 300,000+ tracker morgages they are holding.
I am curious to know if the above was tested would the higher % points on the variable rate offset the loss making trackers over the course of a twenty year morgage?

It's down to how the banks fund their lending. The banks use deposits to guarantee their own borrowings (called leveraging). They borrow money at rate x and loan it out at rate y, with the profit/loss being the difference between x and y.

The problem is that the banks don't borrow money for the length of any loan, let alone a mortgage. They will borrow money to fund all their loans for a set period of time. E.g. BOI will borrow 50m @ 2%, the use it to fund all sorts of things like car loans, personal loans & mortgages.

Tracker mortgages are linked to the ECB rate, usually something like so it's ECB + 1% which is very low (1.75% for the marginal rate, the others are lower still). The problem for the banks is that they are borrowing at higher rates than this to fund their mortgage books, so are making a loss on tracker mortgages - the size of the principle just makes the loss bigger.

odd1 wrote: »

thanks anto

am i way off the mark in saying, the higher profit making variable rate will benifit the banks and everyone in the long term.
turning a loss into a win is bound to make there books look good, and with that should cover the 20% discount over twenty years.
people with more cash wil lead to higher depoists in the banks,more money in circulation and consumer spending will most likely increase.

In theory you're right, the higher profit will benefit the banks (depending on the rates they're funding the loans at).

In practice the higher rates of interest for VR mortgages will probably take more money out of the economy as people pay more and more to support their mortgages and the banks use it to pay down their own borrowings.

The only way that it would benefit everyone is if inflation (of wages) took off, which would allow people to pay off loans and have spare cash. This is what happened during the boom and it's not going to happen again, especially considering we're trying to keep the cost base down to attract investment and create jobs for the masses.

odd1 wrote: »

thats the beauty of this.. remember the 20% discount.... people would be paying a higher variable rate on a much lower loan.
I wish i could get my hands on some hard figures so this could be teased out...and make a case.
it is my belief that the government should stand up to the banks and start telling them who,s boss

Enough of the tail wagging the dog;)

So who pays the 60K discount (from the example) that the banks had to borrow in order to provide that mortgage for you?

Does the taxpayer have to stump 20% of all mortgages in Ireland, or are you expecting interbank lending systems and European banks just to ignore billions that were loaned to Irish banks to fund that 300K?

odd1 wrote: »

as far as im aware the taxpayer has already has stumped up this money.
the goeverment gave a coulpe of billion to the banks as a provision for debt write off... which has never been used for its intended purpose:mad:

be as good a starting point as any!!!

The government has not "stumped up" 20% of the loan value of the total Irish mortgage book, or anywhere near that amount..

So if you plan was even remotely viable, who is going to fund the 20%?

Edit - To put it into perspective.. Irish Mortgages in June 2011 were worth €115 billion.
http://www.ronanlyons.com/2011/08/30/top-ten-facts-in-relation-to-ireland%E2%80%99s-mortgage-debt-arrears/

odd1 wrote: »

i am ONLY talking about trackers here. now i dont have exact figures so im going to give an example and would apply the same to the real figures.

Easy enough to find out, the central bank publish these figures.

Start here: Private Household Credit and Deposits

You'll find that there as of the end of September 2011 €52 billion odd in outstanding tracker mortgages (of a total market of almost €118 billion) granted to private residences.

Welease wrote: »

- Many people in Ireland can adequately service their mortgages. If you give a 20% discount, many will simply pay off their mortgage (I would), and crystalise an immediate bigger loss for the bank.

That's the biggest problem we have. A recent newspaper report claimed there were 6,000 "can but won't pay" mortgages in arrears (link to follow if I can find it)

There's not source attributed in the article for this that I can see but they claim that there are between 6,000 & 12,000 "strategic defaulters" or people that can but won't pay their mortgages.

Banks want me off my tracker, they got to make it worthwhile to me, ie i got to make something out of it. I was smart enough to take the tracker, so they need to reward me. Otherwise i will continue on paying it for next 25 years.

The only reason you should look for a discount on your tracker is if you have a wad of cash from somewhere and you want to completely or partially pay it off.:eek:

Assumeing 200,000 left of morgtage over 25 years tracker rate is .75 over ECB totale rate 1.75% rate montly repayments about 812 euro/ month

20% discount leaves a loan of 160000 over 25 years we will assume a variable rate of 3.75% ( AIB & BOI Standard Variable under 20% equity according to Sundat Times) this would leave a loan repayment of 783 euro's
Now it looks like you are winning however the bank can adjust the variable rate at will you are locked in unless you can move which as you are in negative equity you will find very tough

Lets assume that the banks add .5% on to the variable rate so your new variable rate is 4.25% and guess what your repayments are 817 euro and that is only with a 0.5% rate rise

My figures are not 100% accurate but I do not think they will be out by more than a tenner and the error will be the same way on every calculation

I can see no advantage in moving off a tracker unless you want to pay a lump sum off it and they are willing to discount you. But the question is will they discount you 20%:cool:

If you had a lump sum of 50,000 you can get an intrest rate of 4-4.5 % so you can get 2000-2250 in intrest less DIRT every 12 months at present you are also getting intrest relief from your mortgage.

Thoie wrote: »

I did the sums a few years ago for my own tracker when this thing about banks "buying" people out of trackers was first mentioned. At the time I worked out that they'd want to be offering me somewhere between 50-75% of the outstanding balance to make it worth my while.

Obviously enough they're not going to pay that (and as others have asked, where would that 50-75% come from?), and equally obvious, I'm not going to volunteer to move to another mortgage without that level of discount (as otherwise I'd be at a loss).

I go back to school and start studying maths again because unless you were going to Tony Soprano for the new mortgage there is not that much of a difference in intrest rates