AIB rejects offer to repay half of tracker mortgage

Q&A: I have a tracker mortgage with AIB (just over €400,000) on my house at the excellent rate of 1.35 per cent. I have €200,000 on deposit with AIB at an interest rate of 2 per cent.

I am currently amicably parting from my wife and moving to a nearby property I have and I have made a proposal to AIB that I will clear half my tracker with my €200,000 (which they should be thrilled at) as long as they allow me to move the other half to the property that I am moving in to. There is no loan on this property and it is easily worth €200,000.

To my amazement they turned down this offer, which I think is unbelievable, bearing in mind the gain to them on getting rid of a loss-making tracker of €200k! I’m not sure where to turn next and am wondering if you have any advice for me.

Mr E M , email

At first sight, it is very difficult to see why the bank would turn you down flat on your proposition. They are losing on the tracker, as they keep telling us, because there is no way they can source money at 1.35 per cent, never mind at a lower rate which would give them some profit margin on the mortgage loan. On top of that, they are losing a further 0.65 of a percentage point on the difference between your mortgage rate and the deposit rate you are getting for your €200,000 savings.

You are effectively offering to put yourself at a financial disadvantage vis-a-vis the bank in order to expedite your amicable family separation. Accepting your offer would, as you say, appear to be a no-brainer for them.

I am assuming that there are no arrears or default on the loan. Even though that would not negate the validity of the proposition, it would explain why the bank might be slightly wary of entering an agreement that would effectively change the nature of the security they have on the loan.

So where do you go from here? There are two options. First, if you really want to pay back half of this loan, persevere with the bank, in writing. Seek some clarification of their problem with your current proposition and see if it can be worked around. As a rule, banks will seek maximum protection; their preference would be to have both of you tied to the mortgage, or even both properties, but there is no reason why you should accede to that.

If you are getting no success at the local or mortgage section, appeal further up the chain through the in-house complaints procedure. At some point, the bank must be able to explain why it is spurning a financially advantageous offer – effectively at the cost to the taxpayer who currently own and financially support the operation.

One issue that may arise is the value of the property to which you propose to transfer the balance of the mortgage. You state that it is unencumbered – ie there is no debt outstanding on it.

The bank would clearly need to confirm that to its own satisfaction. It might also, reasonably, insist on an independent valuation of the property to which you intend attaching the mortgage for the future. Finally, they might seek reassurance that you have the financial means to pay any capital gains tax bill that will eventually be liable on the future sale of this property for the period when it was seen as an investment – ie, not your family home.

In the circumstances – ie, you wishing to move the loan – the bank would probably insist on you bearing the legal and valuation costs. You could try to negotiate but, ultimately, if that is all standing in the way of securing your transfer, it would probably be worth conceding on that point.

However, the second option is also worth considering. You have a very good mortgage rate on your loan; you also have substantial savings on which you are receiving a better rate. Stay as you are, and continue to pay down the mortgage as you were originally planning to do.

If the cost of servicing the full €400,000 loan as a separated person is too high, use some of those savings to pay down some of the capital of the loan. You will need to specify that it is set against the capital as that will have the greatest effect in lowering your monthly payments.

There is nothing to stop you doing this on a tracker rate, without jeopardising the mortgage agreement.

I’m conscious that, in a separation, both sides can be looking for a clean break and your wife may wish, or be advised, to seek that the family home is unencumbered under the terms of the separation. However, as the split is amicable – and the alternative is a financial burden that will ultimately impact both you and your ability to contribute to the financial requirements of the family under a separation agreement – it might be the lesser of two evils.

I certainly would not, under any circumstances, give up the tracker rate. Any alternative rate open to you now would be considerably higher.

Can you give any information on the value of UK contributions when calculating for the new contributory pension requirements? I worked there for about 3½ years in the late 1970s.

Mr J O’C, email

There are provisions in EU law allowing for recognition of social insurance contributions across national boundaries. Essentially, when you apply for a welfare payment, such as the contributory State pension, the form you complete will ask you whether you have been employed in another EU country or countries.

You will be required to state the country in which you worked, the details of your employer there and the dates of employment. In your case, you will also be asked for your UK national insurance number. The Department of Social Protection will then access details of your social insurance record in the UK and add that to your Irish PRSI contributions to determine your eligibility for the contributory pension.

Although updated in the interim, the cross-EU provisions date back to the European Economic Community regulation in 1971, so your employment in the UK towards the end of the 1970s should certainly be covered.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.