Permanent TSB confirms bonus for extra payments on tracker mortgages

PERMANENT TSB has confirmed that customers who make additional lump-sum payments on their tracker mortgages will receive bonus payments off their loans.

Under the scheme, the bank will add 10 per cent to each additional payment of €5,000 made by tracker customers on their mortgages.

The move is designed to speed up the process of running down the loss-making tracker mortgages on Permanent TSB’s loan book.

Most other Irish lenders said they had no plans to introduce similar schemes. Representatives of AIB, EBS and Ulster Bank said there were no plans to bring in bonuses for overpayments.

A spokeswoman for Bank of Ireland said its mortgage products and pricing were “under constant review”, while a spokeswoman for KBC Ireland said there were “no immediate plans” but that the lender would “watch with interest the consumer reaction to the Permanent TSB offer”.

The Irish Brokers Association said the deal was a good one for people who did not intend to take out further borrowings, but warned against the move for anyone who may look for credit in the future.

“If you believe that this is your final mortgage and you don’t intend to borrow again in the future, even for a car, then this represents a good deal,” said Ciarán Phelan, chief executive of the association.

“Any new borrowings will be at a much higher rate and be far more expensive even allowing for the 10 per cent bonus,” he added.

“There are two important factors in any future borrowings; gaining approval and the rate you’ll be offered – the former is incredibly difficult and the latter is likely to be a multiple of your current tracker rate.”

The offer, available to residential, investment and commercial tracker mortgage holders, will run until June 17th.

The bank has set a ceiling of €500 million on the amount of additional repayments it will receive under the scheme.

It is also open to customers who are currently in arrears, and the bonus payment will apply to any payments made once the arrears have been cleared.

Permanent TSB chief executive David Guinane said it was in the interest of both the bank and customers to reduce the amount of outstanding balances on tracker mortgages.

Under the terms of the EU-IMF finance deal, Irish banks have been directed by the Central Bank to shrink their balance sheets by the end of 2013.

Tracker mortgages have become a source of “built-in unprofitability” for Permanent TSB, Central Bank governor Patrick Honohan said last month.

Reports have suggested that tracker mortgages are costing Permanent TSB more than €400 million a year. This is because the interest rate charged on the loans – set at a fixed margin above the European Central Bank (ECB) base rate – is several percentage points lower than the cost of financing the loans. Trackers account for about 60 per cent of Permanent TSB’s €27 billion mortgage book.

AIB has confirmed it is increasing its deposit rates in line with the ECB decision to raise its base lending rate this month. All deposit rates will increase by a quarter of a percentage point in tandem with the ECB rate rise.

Tracker mortgages will also increase, as will the rates on personal loans and overdrafts.

The higher rates take effect from tomorrow.