PERMANENT TSB, one of the country biggest home loans providers, will this week unveil incentives aimed at encouraging customers to overpay on their tracker mortgages in an attempt to get the loss-making loans off its books.
The Irish Times has learned that an incentive of more than 5 per cent will be offered by the bank to tracker customers who make additional capital repayments on their home loans.
So for every additional €1,000 that a customer pays off their mortgage, Permanent TSB will reduce the sum owed by an additional €50. On a €300,000 mortgage, this would amount to a payment of €15,000 although it is unlikely that many people would be in a position to repay large chunks of their loans given the current economic environment.
The proposal will be launched by Permanent TSB chief executive David Guinane. But the incentives to be announced this week will not allow trackers to be ported between properties for customers who agree to higher interest margins on their loans.
It is understood that the Central Bank has been advised of the move by Permanent TSB. A spokesman for Permanent TSB, the banking arm of Irish Life Permanent (ILP), declined to comment on its precise proposals.
“We have indicated before that we were looking at innovative solutions to help customers in the current challenging environment,” the spokesman added.
Reports have suggested that tracker mortgages are costing Permanent TSB more than €400 million a year. The mortgages carry very low interest rates – the average is about 2 per cent – while Permanent TSB pays about 5 per cent to finance the loans.
This interest rate on a tracker is one percentage point above European Central Bank (ECB) interest rates. These apply for the life of the loan and customers cannot be forced to give them up.
The tracker rate will increase by a quarter of 1 per cent in line with the ECB’s decision last week to raise its rates to 1.25 per cent.
Permanent TSB is keen to encourage customers to repay the trackers early to reduce its funding costs.
It remains to be seen how many mortgage holders will take up the offer given the attractive interest rates attached to the trackers and the fact that many homeowners are struggling to meet their financial obligations in the recession.
Trackers account for about 60 per cent of Permanent TSB’s €30 billion mortgage book – by far the highest proportion among lenders here.
This move is part of a wider restructuring of the bank that includes 280 redundancies.
Mr Guinane told staff on Friday he wanted to accelerate the group’s restructuring, announced earlier this year.
He said it was important that the bank was returned to profitability and was able to demonstrate that it could operate as a stand-alone entity.
ILP requires €4 billion to cover the cost of potential losses from home loans, which amount to twice its deposits, and to insure against future risks to its solvency.
This follows recent Central Bank stress tests.
