Trackers finally find favour with public

The property market is in the middle of its most frenzied selling season. This means that the mortgage market is also in the throes of frantic activity.

It makes sense that borrowers will be influenced by advertising when it comes to choosing one mortgage over another. It is for this reason that the tracker loan - arguably the most efficient and appealing mortgage on the market - is coming into its own.

Trackers - loans that apply an interest rate within a fixed margin of the key European Central Bank rate for their lifetime - have been around for at least three years, despite a perception that they are recent arrivals on the scene. Bank of Ireland, for example, launched its first tracker in 2001 - few customers took an interest in its merits.

The low take-up was based on a range of factors including consumer inertia, but a lack of promotion on the bank's part may have been to blame too. It is not unfair to presume that a lender will spend its publicity budget on luring new business into higher-margin products such as fixed-rate loans.

Three years on, however, times have changed, with Bank of Ireland now promoting a "suite" of trackers for its new borrowers.

As with most lenders, Bank of Ireland's tracker rates will vary according to the loan amount and how that relates to the value of the property being bought. For example, where the loan is higher than €200,000 but this represents less than 60 per cent of the property value, the tracker rate will be 2.95 per cent, or 0.95 of a percentage point above the current ECB rate of 2 per cent. When the loan is greater than €200,000 and the loan-to-value is higher than 60 per cent, then the tracker rate will increase to 3.10 per cent.

The highest tracker rate offered by the bank is 3.3 per cent, with this still lower than the standard variable rate that Bank of Ireland offers to its new and existing customers: 3.6 per cent.

This situation - where the tracker rate is always lower than the standard variable rate - also applies to AIB, which has noted a significant increase in the take-up of trackers in the past few months.

It seems that new borrowers are finally realising that a standard variable rate that offers no guarantee to stay within a margin of the ECB rate, or no guarantee to move according to ECB rate increases or decreases, might not be the best deal. This latter point, whereby a tracker guarantees to move within a set number of days of an ECB rate change, is one of its most appealing features.

As Ms Olive Moran of Bank of Ireland Mortgages points out however, this aspect may be less attractive in the event of an ECB rate hike. Given that the increase will be passed on to the bank's tracker customers within five working days, this could result in tracker mortgages "falling out of favour", Ms Moran suggests. "I believe 'tracker' is the buzz mortgage phrase for 2004 primarily because interest rates are at a historic low and likely to remain at the current low levels," she says.

At AIB, where the promotion of trackers has been stepped up, Ms Catherine O'Gorman says that a surge in demand for trackers is linked with a greater sense of price differentials across mortgage products. "Based on our internal research, customers are becoming more price conscious, are shopping around and have a higher awareness of what's on offer from all financial institutions," she says.