Bank of Scotland/Halifax shook up the Irish mortgage market in 1999 but is now trying to exit it

ONE of the biggest mortgage lenders in the country is offering its customers €1,000 to switch their home loans to other banks or building societies.

The unprecedented cash offer by Bank of Scotland/Halifax is a desperate bid to offload its loss-making tracker mortgages.

And the Irish Independent has learned the move is set to be followed by other lenders offering even larger financial incentives to tempt mortgage holders to give up their valuable trackers.

However, financial experts and consumer watchdogs last night urged customers not to be tempted by the cash offer.

It is estimated more than 400,000 homeowners currently have trackers, which can only rise when the European Central Bank (ECB) rate rises.

Trackers are the only mortgage types that are not rising at the moment.

Shake-up

Bank of Scotland (Ireland) shook up the domestic mortgage market in 1999 when it broke up the cosy cartel operating between Irish banks, resulting in dramatically cheaper rates for customers. But the troubled lender is now offering customers a cash incentive to quit the bank as it seeks to withdraw from the scandal-hit Irish banking market.

The bank, and its Halifax retailing banking division, is thought to be losing money on its mortgages as the vast majority of them are trackers.

The Scottish bank was the first to introduce low-cost trackers to this market, prompting all other lenders to follow its lead.

Halifax and Bank of Scotland (Ireland) wrote to all its mortgage customers telling them it was closing its operations in this country on June 18 next. The move is expected to be followed by other lenders desperate to convince customers to abandon their valuable tracker mortgages, which have escaped the spate of recent interest hikes.

The letter -- seen by the Irish Independent -- added: "If you wish to switch your mortgage from Bank of Scotland (Ireland) in order to avail of a top-up or further advance facility with another service provider, we will contribute €1,000 towards the cost of your legal fees, and €150 towards the cost of your valuation fee, to help enable you to switch."

Tracker mortgages are based on a commitment by lenders to only increase rates when the ECB moves its rates.

However, head of Compliance Ireland, Peter Oakes, warned lenders' lawyers were looking to see if they could find ways to change the terms of tracker deals.

Some tracker contracts have clauses allowing the rate charge to track the Euribor, or wholesale bank lending rate, instead of the ECB rate.

Warned

Financial advisers last night warned customers who have a tracker mortgage with Bank of Scotland/Halifax not to accept the offer.

And many of its customers are already in negative equity and could not make the switch, even if they wanted to.

Karl Deeter of Irish Mortgage Brokers predicted the move would prompt other lenders to seek to buy mortgage holders out of their tracker mortgages.

Some people have tracker mortgage rates as low as 1.5pc as their tracker is set at 0.5pc above the ECB rate, which means banks are losing money on them at a time when the cost of wholesale money has shot up.

"Others will now start to offer bigger and bigger inducements to get you off your tracker because lenders are losing money on trackers," Mr Deeter added. "Lenders will go further and knock several thousands off your mortgage if you clear it."

A spokesman for the bank denied its move to introduce trackers here in 2001 started a spiral of reckless lending.

"I would not say it was reckless lending. It was good for consumers," he told the Irish Independent.

The spokesman insisted that most of the bank's mortgage holders were on trackers, but denied it was paying borrowers to go away.

Consumer watchdogs last night urged customers to stick with their tracker mortgages.

"If a bank is paying you money there must be something in it for the bank -- don't be tempted," Consumers' Association of Ireland chief executive Dermott Jewell said.

Irish Independent