William Hanly, BDM Boylan Solicitors
William Hanly of BDM Boylan Solicitors takes us through what a tracker mortgage is, the recent scandal and what happens to affected customers.
It is impossible to miss the recent widespread coverage of the tracker mortgage scandal. It is a stressful and sensitive subject and can also be quite complex. In short, those affected have been overpaying thousands of euro from their after-tax disposable income in recent years that they should not have had to pay. Banks have been overcharging mortgagors and have received large amounts of money they are not entitled to.
The pressure coming on the banks through the media and from public representatives seems to be directing them to make offers of compensation to each affected party to ensure they are reimbursed every cent they have been incorrectly charged. It is important, however, for the customer to be fully aware of the categories of redress available as the banks’ overriding interest will have to be to close off this matter at the lowest cost possible to them.
What is a tracker mortgage?
A tracker mortgage is a type of home loan where the interest charged on the loan tracks that of another publicly available interest rate, typically the rate set by the European Central Bank (ECB). For example, it might be 1% over the European rate.
The Central Bank of Ireland has been identifying and pursuing some banks in relation to tracker-related issues since 2010. The most usual type of bank customer affected is where a borrower who switched from their tracker rate to a fixed-rate period and/or lost their right to revert to a tracker rate when they came to the end of a fixed-rate period on their mortgage.
Why would people have switched from the tracker rate to a fixed rate in the first place?
The simple answer to this is – for certainty of what repayments they would be making. Tracking the rate set by the European Central Bank left customers uncertain as to what they would be repaying each month in times of economic difficulty. Therefore, changing to a fixed rate for a specified period of time addressed that issue. What has caused the recent controversy is that following this fixed-rate period, customers should have been offered the option to return to their tracker mortgage and were not offered that option.
We have seen clients who have felt the best way forward for them was a complete remortgage of their home with another bank or completely redeeming their original mortgage and moving to another bank. During the early stages of a mortgage a customer mainly pays interest and very little capital, so moving mortgage to a different bank can be an expensive move, not including legal costs, etc. These customers also fall into the category of affected people and may be due redress.
The Central Bank Examination covers all lenders who may have sold tracker mortgages in the past, including those no longer selling mortgages. It also covers mortgages that have been redeemed or switched to another lender.
When a lender identifies an impacted customer it must firstly:
- Stop charging the incorrect rate of interest on the customer’s account
- Ensure that any further customer overcharging is stopped as early as possible
- Communicate to the customer
Lenders must then carry out a full review of the impacted customer’s mortgage account. Once this is complete, lenders must issue a detailed letter to the customer explaining:
- The exact nature of the error
- The correct rate to apply to the customer’s account
- Information on the next steps of the examination, including the redress and compensation process where applicable
There are three elements to any payment one will receive once an investigation has been concluded:
- A redress amount to cover the amount overpaid while on the incorrect rate, a refund of charges applied to your mortgage account and interest to compensate for you not having access to the money you overpaid on your mortgage.
- A compensation amount to compensate for the bank’s failure to charge the correct rate and the impact that this had on you.
- A payment amount of €615 to cover your cost of obtaining independent professional advice that you may wish to seek on this matter.
The most important step a customer can take once they learn they have been affected is to engage a solicitor who will be able to comment on the adequacy of any offer put to them and to advise on the available steps on obtaining redress and what timelines apply to taking these steps.
One cannot, according to the Constitution, be prevented from seeking redress through the courts. However, if an appropriate offer of compensation is made at an early stage from a lender, accepting said offer, following the correct advice, would put the matter to an end in a quick and low-cost manner. The important thing for a customer is to understand the offer put to them, whether it is worth accepting and the potential risks and rewards of pursuing other remedies. Each assessment will be subjective to each case and using another case to assess what is best for one’s individual circumstances would be unsafe.
A simple comparison would be that a family who has lost their home may be entitled to more compensation than a family who managed to meet the overpayments while remaining in their home.
It is unclear at present how strict a view the courts will take as regard to when an action of this nature should be brought before the courts (the Statute of Limitations) and when such a timeline would begin. However, leaving things on the long finger and delaying in obtaining the proper advice is never recommended.
William Hanly, BDM Boylan Solicitors, Clarkes Bridge House, Hanover Street, Cork, Ireland