Lenders told to warn customers when leaving tracker rate
THE FINANCIAL Regulator has told lenders to provide clearer information to customers who move off cheap tracker-rate mortgages and to warn them that they may not be able to switch back when being offered other rates.
Following an examination of mortgage switching, the regulator found that lenders were not fully transparent communicating with some customers about the consequences of moving from a tracker-rate mortgage to a standard variable or fixed-rate mortgage rate.
Tracker mortgages follow European Central Bank interest rates and have proved far cheaper for customers and more expensive for lenders as banks cannot change them under the terms of the loan.
On the other hand, variable and fixed-rate mortgages can be adjusted and have risen sharply above the tracker rates due to the higher cost of funding to the banks following the financial crisis.
As a result of its examination, the regulator has told lenders to show customers the difference in monthly repayments between the tracker rate and other mortgages, and the advantages and disadvantages of the rates being offered.
The regulator said it was considering a “cooling off” period to allow customers who have switched to change their mind and return to their old rate – a practice followed by one mortgage lender.
Customers who switched from tracker rates and were not warned of the cost may also be allowed to move back to their tracker rate.
“Where we discovered poor levels of disclosure we are following up on these matters with the mortgage lenders concerned,” said the regulator.
“In this regard these mortgage lenders have been requested to conduct a review of certain aspects of the tracker-rate mortgage book.”
The regulator found no evidence of customers being offered incentives by their lenders to move off tracker mortgages, on which many institutions are losing money as they are paying more to provide the loans than they are making from the borrowers.
“Mortgage lenders have been instructed to give careful consideration before offering any incentives to customers to move from tracker rates and to notify us in advance of any such proposals,” the regulator said.
Mortgage broker Frank Conway, director of the Irish Mortgage Corporation, warned tracker-rate borrowers that they should be wary of moving to other rates.
“We are saying: ‘Mind your tracker and only move off it when it is beneficial to you’.”
Fine Gael’s housing spokesman Terence Flanagan said greater transparency and disclosure were needed so bank customers were fully aware of pricing before they move from tracker mortgages.
The ECB has kept its main interest rate at a historic low level of 1 per cent since May 2009 over which tracker-rate customers are paying as little as half a percentage point, while standard variable rates have risen well in excess of 3.25 per cent across most lenders.
Banks stopped selling tracker-rate mortgages in late 2008 as a result of the global banking crisis.
Allied Irish Banks (AIB) has said that 59 per cent of the bank’s €27 billion Irish mortgages were on tracker rates at the end of June.
The Financial Services Ombudsman last year ruled against a building society in favour of a couple who had sought to return to their original lower tracker mortgage rate after two years on a fixed interest rate.
The ombudsman referred this case to the regulator for any action deemed appropriate, including potential industry-wide sanctions.