Tuesday, 3 March 2009

Ireland's first Euribor tracker mortgage

Leeds Building Society have announced a new tracker mortgage product which tracks Euribor rather than the European Central Bank (ECB) base rate so beloved of previous tracker mortgages, which are now rarer than hen's teeth.

The Euribor rate is more representative of the rate at which banks lend to each other. The ECB rate and the Euribor rate used to follow each other closely. Then came the credit crunch - the Euribor rate went sky-high while the ECB rate didn't. So banks quickly withdrew ECB trackers from the market because they were borrowing at Euribor but their customers were only paying back at a small margin over ECB. In effect, they were losing money on a lot of their more competitive ECB tracker mortgages.

This new Euribor tracker rate takes that unsavoury possibility away for the banks. It's good for customers in that it means they aren't at the mercy of bank management who decide not to pass on rate cuts. But it's a risky punt too because the Euribor rate has shown that it can spike upwards from time to time which would be painful if your mortgage tracks it.

In any event, the Leeds offering is expensive at Euribor + 3% but then Leeds aren't targetting mass-market business. However, it's an interesting start which will hopefully be picked up on by other lenders. Euribor tracker with a ceiling anyone?

I'm taking all the credit for the idea, by the way...I mooted the possibility of a Euribor tracker in The Sunday Tribune here back in December. Royalty cheques in the post to the usual address, please, Leeds!

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