John Hearne: Could tracker-type mortgages stage a comeback?
Banks stopped offering full tracker mortgages 15 years ago. Picture: iStock
Avant Money is launching a new variable-rate mortgage product which is benchmarked against a key eurozone lending rate.
Sound familiar? Tracker mortgages, in which the rate you pay shadows the European Central Bank rate, were once hugely popular in Ireland, but the banks stopped offering them over 15 years ago. Avant is calling its new variable-rate mortgage product the Flex Mortgage.
Joey Sheahan, Head of Credit at online brokers, MyMortgages.ie, says that the arrival of this new product is a positive development for mortgage customers in Ireland.
“By linking it to the 12-month Euribor rate, it introduces a more dynamic option than we’ve seen in the market for some time.” If the rate goes up, your monthly payments go up, and if it goes down, your payments fall in proportion.
“This level of flexibility,” says Mr Sheahan, “particularly with unlimited overpayments and no early repayment penalties, will be appealing to borrowers looking for greater control over their mortgage.”
He does sound a note of warning. “It's important for borrowers to fully understand how a Euribor-linked mortgage works. While the prospect of lower rates can be attractive, rates can also increase, just as we have seen over the past two years with ECB interest rate... Anyone considering this product should be comfortable with potential fluctuations in their repayments.”
He points out too that there are many borrowers out there for whom a fixed-rate mortgage is more suitable for the certainty it provides, particularly in an environment where you just don’t know where interest rates are going to go.
“For those who are unsure and perhaps a bit sceptical of taking on a tracker mortgage, it’s worth pointing out that tracker mortgages today should not be confused with past lending extremes. Mortgage lending is now governed by much stricter regulatory safeguards, ensuring that borrowers are protected from unsustainable borrowing practices.”
Daragh Cassidy of Bonkers.ie explains that Avant Money’s Flex Mortgage is a variable rate that is benchmarked against the 12-month Euro Interbank Offered Rate – Euribor for short. This is the average interest rate at which European banks lend money to one another and serves as a benchmark for various financial products, including mortgages and savings accounts.
“Avant then adds a set margin to this rate, which will depend on your loan-to-value (LTV) ratio. For those with a 10% deposit or an LTV greater than 80%, a 1.10 percentage point margin is added. For those with a 20% deposit or an LTV under 80%, a 0.90 percentage point margin is added.”
At the moment the 12-month Euribor rate is 2.41%, though it changes on a daily basis, which means Avant’s variable rate would range between 3.31% and 3.51% at present. However, your exact interest rate will be set on the day you draw down your mortgage and is then adjusted each year based on the 12-month Euribor market rate. So this provides certainty over your repayments for the following 12 months.
“Depending on your perspective, trackers were either the best or the worst thing to happen to the Irish mortgage market,” says Mr Cassidy. “They ended up causing a huge headache for the main Irish banks but they also offered incredible value for a long period of time.” That connection with the collapse of the Celtic Tiger era has likely informed Avant’s reluctance to re-introduce the term.
There are also differences between the Flex product and the Tracker. The latter follows the European Central Bank’s (ECB) main refinancing operations rate. This rate is currently 2.65% and used to be the ECB’s ‘official’ rate that it used for influencing interest rates in the wider eurozone economy. However, its main rate is now the slightly lower deposit rate.
“Avant’s product is benchmarked against the Euribor rate,” says Cassidy, “so in this instance there isn't a huge difference between Avant’s Flex Mortgage and a traditional tracker. It just tracks a slightly different rate. However, while a tracker rate will usually go up or down within 30 days of a rate change by the ECB, Avant’s ‘tracker’ will only go up or down once a year. So it feels somewhat like a short-term fixed rate too.”
Avant says its Flex Mortgage will be available to both new and existing customers from April through Avant and select mortgage brokers. The big question of course is whether or not the rates are competitive. Daragh Cassidy says that they are.
“For a standard first-time buyer with a 10% deposit, variable rates range from 4.15% to 5.90% right now. And for someone looking to switch lenders and who has around 20% to 40% equity in their home, variable rates start from 3.95%. So these rates are much lower.” And because it’s a variable rate, you can overpay on your mortgage without penalty. You can also pay off your mortgage early at any time without any fees or charges.
The other point to make here is that if you’re on a standard variable rate, it’s at the discretion of the bank as to whether they pass on any rate cuts by the ECB. By linking Avant’s variable rate to a benchmark rate, mortgage holders have more certainty and transparency over their repayments.
But you’ll still need to weigh up whether this is the right product for you.
“Fixed rates as low as 3% are now on offer from AIB and PTSB,” says Cassidy, “so you may get better value with one of those. However, if rates continue to fall, you may not want to be locked into a long-term fixed rate either. So you should get good advice on all your options.”
This new product arrives against the backdrop of the ongoing housing crisis. Blockages in the system continue to limit the supply of new houses, which means that prices are only going in one direction.
Last week, the CSO announced that the national Residential Property Price Index (RPPI) increased by 8.1% in the 12 months to January 2025. Property prices in Dublin rose by 7.5% and prices outside Dublin were up by 8.6% compared with January 2024. The median price of a dwelling purchased in the 12 months to January 2025 was €359,999.
Trevor Grant is chairperson of Irish Mortgage Advisors. He says that while the rate of national house price growth has eased, house prices are still rising steeply and continue to be a huge source of frustration and despair for many house hunters. “For too many of this country’s young people, buying a house has simply become unachievable.”
While mortgage approval activity has increased in most segments of the market, January saw the first year-on-year decline in first-time buyer mortgage approval volumes since June 2024 – that’s according to figures published by the Banking & Payments Federation earlier this month.
“If this trend continues, it could be an early indication that some of the heat is coming out of the market, which in turn could eventually see house prices stabilise.”
