New Move by Permanent TSB will Provide Liquidity to Housing Market

‘Movable’ trackers will allow current mortgage holders to transfer their loans to a new home.

A major move by Ireland’s Permanent TSB this morning shocked the mortgage market. The deal will allow existing customers to move without giving up their cheaper loans. People will be able to sell their existing homes and take out a new mortgage on another house while preserving a portion of their tracker loans. A slightly higher margin will likely be charged on the new trackers. The homeowners keep their existing mortgage which is transferred to a new home and any amount above the current lien will be subject to the current standard variable rate (SVR).

The new deal will apply to homeowners who wish to sell their existing homes and buy another one by paying a slightly higher interest rate. This new type of loan will still provide them with a significant savings when compared to alternatively taking on a new mortgage on fixed or variable rate and forgoing their tracker. Today’s SVRs are typically higher than 4%, while tracker rates are 0.5 to 1.25 percentage points above the European Central Bank rate. Presently the European Central Bank rate is at an all time low of 0.25%. One percentage point will most likely be added by the bank to any new tracker it facilitates.

A homeowner with a current tracker rate of 1.25% would see a rate of 2.25% applied to only the portion of the mortgage which they transfer to the new home. For example, the monthly cost of a €100,000 loan would increase by about €60 after adding one percentage point to a tracker mortgage. This compares to a monthly increase of over €400 on a regular SVR. Previously, most tracker mortgage-holders have been reluctant to move since they would have had to surrender the cheaper tracker loan. This has arguably created a shortage of homes for sale, especially in the Dublin area. The deal is designed to force the hands of banks that have refused to develop products to allow homeowners move on without significantly increasing their monthly payments.

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