Tea & Mortgage Podcast #28 – Tracker Mortgages to the new Flex Mortgage

0:03 – 0:13 Norm Schriever

All right, everyone, how’s it going? We have episode number 28 of the Tea and Mortgage podcast with John Coleman. John, how are you today, mate?

0:14 – 0:22 John Coleman

How are you, Norm? Yes, number 28. I always comment on the numbers, don’t I?

I think every time I hear the number, I kind of go, oh my God, 28 and counting, Norm, yeah.

0:23 – 0:35 Norman Schriever

We do have something interesting though, to talk about, and this was a little bit controversial and you gave me a little of the background, and that is Tracker Mortgages, but actually a new and improved version of Tracker Mortgages.

0:36 – 1:02 John Coleman

Yes, that’s correct, and I think that term, I’m going to probably give a bit of a history lesson to the Tracker Mortgage concept. It literally was taken off the Irish market 15 years ago, okay? It was a hugely popular product back in the day, but at the time, it almost broke the Irish banks, okay?

So let me kind of explain, the Tracker Mortgage was set up as a variable mortgage that tracked the European Central Bank rate, so that was called the ECB. Now, this was done by the banks that made this call, that they would track the ECB rate and they offered that out to all clients who took a Tracker Mortgage. However, the problem that this caused for them, when back in 2008, the financial world almost imploded based on the Lehman Brothers and Escobedo, the problems with the US banks, etc, that the bank would get their money based on an interbank lending rate, which suddenly became completely different to the ECB rate.

Previously to this, it was perfectly aligned, it tracked it, they were the same rate in effect. But suddenly, so just as an example, if the Tracker Mortgage was at 1%, or the ECB rate was at 1%, the rate that the bank were lending at were at 1%, but suddenly, they were having to borrow, costing them three, and they could only get one from their customers. So suddenly, this caused an absolute massive headache for the banks.

They immediately stopped offering it as a product. And then it became a bit of a scandal, because for years, basically, they were trying anything and everything to get their clients off the Tracker Mortgage, because it was too costly. Now, so much so that the regulator here basically investigated each and every bank, and each and every bank was hit with really, really significant fines.

So the word Tracker Mortgage certainly has potentially negative connotations in the marketplace for people who got burned by the banks and who were waiting on compensation. But for a period of time, and for anyone who wasn’t taken off the Tracker Mortgage, it was of massive, massive value, to the point that I would have been telling everyone for a significant period of time, if you got a Tracker Mortgage, even if the rates were going up, don’t come off it. It’s the best value for money you will ever get.

My advice was, if the bank was giving you encouragement to come off it, just don’t do it, basically.

3:34 – 3:36 Norman Schriever

And it’s in their favor, not yours, yeah.

3:37 – 4:19 John Coleman

Absolutely in their favor. Now, obviously, in the last couple of years, when the interest rates were going up significantly, and anyone that was on a Tracker Mortgage was being hit with those increases, there was a sort of a, oh, God, I should really move away from the Tracker Mortgage. Now, I was still giving the advice to anyone that asked, and said, listen, if it was me, and I had my own Tracker Mortgage, I wouldn’t get off it.

Now, you will have a year or two of pain, okay? But I do think that will work. There were two years of pain as the rates were going up, but the rates are now coming back down.

So anyone who didn’t move away from the Tracker Mortgage is still benefiting in a significant way from that particular offering.

4:20 – 4:42 Norman Schriever

Now, let me ask this, John. Let me jump in, if you don’t mind. Just to put it in perspective, and it’s interesting to me, when Tracker Mortgages, like around 2008 and afterwards, were popular, what was the typical difference between someone who maybe had a fixed rate and someone who had a Tracker Mortgage?

Like, was it a 1%, 2%, 3% difference? Was it really, really big?

4:43 – 5:04 John Coleman

Well, it was significant to the point that, obviously, as the rates were going up, you’re being, like I was saying, very low. You could have been talking anywhere between- Now, again, this is all case by case. You could be talking anywhere between €2,000 to €8,000 on a yearly basis, right?

Depending on the size of the mortgage. It really was significant, right?

5:05 – Norman Schriever  Wow.

5:06 – 5:29 John Coleman

You want to just crude maths, but it was significant that the banks were trying to encourage people and were offering all sorts of things to get people off them. I can’t really answer your question finitely, but I can answer it on a certainty. I was seeing €200 per month, €600 per month of differences depending on…

5:30 –  Norman Schriever   Yeah.

5:30 – 5:31 John Coleman

The level of mortgage that was outstanding, basically.

5:33 – 5:37 Norman Schriever

So, there’s still people in these Tracker Mortgages that refuse to get off them?

5:38 – 6:04 John Coleman

But again, the banks aren’t offering them more, other than, obviously, we will talk about now the new and improved version. If the truth be told, if the banks had structured it in the way that’s now being brought to the market, it would never have been an issue for the banks, this Tracker Mortgage, but it was a mistake that was made, and it was hugely costly.

6:05 – 6:08 Norman Schriever

Yeah. Well, there was a lot of mistakes made at that time, right?

6:09 – 6:32 John Coleman

Well, a lot. As we talked about, and yeah. They were giving money away to people like Kennedy, and truth be told, it wasn’t- We won’t revisit that history.

That’s well in the past, thank God. The regulation now has tightened up to the point now whereby there isn’t the level of foolish lending that was going on back in the day, which was – No, not even close.

6:33 – 6:49 Norman Schriever

Not even close, right? So, interesting. So, yeah, and then you mentioned just literally last week, there was announcements that they have a new and improved 2.0, whatever you want to call it, similar to the Tracker Mortgage product that’s way safer, that has a lot more guardrails.

6:50 – 8:15 John Coleman

Well, yeah, the bank, and they’re not calling it a Tracker Mortgage, right, based on the connotation that I’ve just been saying. It does have the word, does certainly in Irish banking societies, among the Irish public, has a certain negative connotation. But our money now, who are part of the big Spanish group, Banco Inter, have basically issued a new variable rate product, which is basically kind of benchmarked against the key Eurozone lending rate.

Now, it’s not the ECB rate, and that’s the key difference, right? It’s based against the Euribar, which is the rate that the banks lend their money on, okay? The ECB rate is just the general rate, but the Euribar rate is a completely different rate, okay?

So, it actually tracks that particular rate rather than the ECB rate, okay? So, it’s a lot less volatile, or? Well, it’s more, I wouldn’t, it’s hard to say for sure that it’s a lot less volatile.

That would all depend on what’s happening in the general market. It’s more a case of, it’s not, well, one thing is track, like, what the banks got wrong, they tracked the wrong rate basically, right? Mm-hmm, yeah, okay.

They tracked a rate that was stationary. The Euribar rate was a different, it was like two different markets, right?

8:16 – Norman Schriever Yeah.

8:16 – 11:40 John Coleman

And the Euribar went to a higher rate based on what was happening in the world, but the ECB rate was completely different. So, it was like apples and oranges, and the banks were tracking the apple when they should have been tracking the orange. I hope that makes sense.

So, I wouldn’t want to say that it would be less volatile, that’s a, there’s a bit of crystal ball required to make that statement, but whereby it’s going to, if someone is a believer in that the rates are going to come down and doesn’t want to take a fixed rate, okay, then this is a great option to have on the table, right? Because at the moment, and this is the key difference, right? You’ll probably have heard me talk about this.

The European Central Bank rates will have come down, but we’re still at the mercy of when the bank decides to reduce their variable rate, okay? Now, when the rates were going up, the banks weren’t increasing them at the same pace that the rates were going up, but now in reverse, they’re not reducing them at the same pace as rates are going down, okay? With this, what we are, I’m going to use the word tracker mortgage, but with this rate that’s tracking this rate, if that rate’s coming down, so is the rate – Okay, it’s a direct correlation.

It’s a direct correlation. So, you’re not at the mercy of the banks. So, basically, this is a great offering for anyone who thinks rates are going to come down, and wants the flexibility of being able to overpay your mortgage by as much as you want at any moment in time, okay?

I’m not saying it’s absolutely the right choice for every single person, okay? But it’s a great new addition to the market to be able to have this. And what they’re offering now is much more, like the best variable rate in the market will be somewhere around, let me just give you an exact figure here.

You could be looking at 3.95%, but with this rate, you’re kind of looking at, it’s much more, I don’t know, it’s kind of, it’s sort of just over 3%, depending on, and that can change. So, there’s a significant difference with their variable rates and this rate. So, but again, this is all personal choice.

So Norm, this is all about believing, do I think rates are going to come down? And again, that’s a personal vision on where you think the world is at. Like with, and I know we said we wouldn’t mention his name, but Trump, with what he’s doing, you could even, you could argue in both ways, right?

Is his madness going to create inflation? And if it does, rates will go up. Or is his madness going to create a recession, which might mean rates will come down?

So, depending on your, and I don’t want to pretend I’m an economist here. I’d say you could get 10 economists in the room here and they have 10 different opinions, basically, on this, right? So, if your view is that rates are going to come down, well, this new option would certainly be something that would be the most competitive in the market at this moment.

It’ll be interesting to see how the other banks react to it. And when tracker mortgages came to the market, they really did open up the world back at that point. So, more competition is obviously, it’s great.

11:41 – 12:03 Norman Schriever

Yeah, that’s why you always say, you know, more banks, more products, more options for the consumers. There’s definitely not a one size fits all, especially with this, but just the consumers having options and other banks start opening up their book of business a little bit. Let me ask you this.

What is this Spanish bank that’s offering this in the Irish market? What are they calling the product? Like they’re not calling it a tracker mortgage, right?

12:04 – 12:09 John Coleman

No, let me get the exact, let me just get the exact term for it so I don’t mislead anyone. They’re calling it the flex mortgage.

12:13 Norman Schriever     Flex, okay.

12:14 – 12:50 John Coleman

Right? And it’s basically, that’s what they’re calling it, a flex mortgage. But in effect, it just tracks a different rate to the ECB ratio.

And it’s a clever name, because it is flexible. It says what it does. But now the one difference between the rate will only go up once or down once a year, right?

So you could argue that in a way it’s a short term fixed rate, but you know that the rate’s going to come down or you know that the rate would go up, but there’s a little bit of security built into it as well.

12:51 – 13:11 Norman Schriever

Interesting. Okay. Yeah.

So it’s not like month to month or it’s not that, yeah, yeah. Interesting. So, you know, there’s a potential for some people in some scenarios to save some money and like any mortgage, they should come talk to you first to look at their individual circumstances and their risk tolerance and their goals to see if it’s an appropriate product.

13:12 – 14:17 John Coleman

Where this bank were very, how to describe it, they weren’t even offering variable rates recently, but they did very strong, they were the only bank that were offering long term fixed rates. They’ve almost got two pieces of the market boxed off here from a competitive point of view. So anyone that might be thinking of switching their mortgage or they’re coming off a mortgage, they offer a great sense of, if you felt you wanted to tie in for 20 or 25 years, they’re the only bank in the market that actually offer that, whereby you take all the risk out of the interest rate world for the next 20, 25 years and just take one rate and it’s very competitive on that side as they’re the only bank to offer it. But they’ve also now introduced this piece to the market where now they’ve got the best variable rate and they’re tracking a, like, so there’s, you have some level of confidence that if rates are coming down, you’ll be following with it. So they’re being quite proactive in terms of going after a particular, maybe, I use the word niche, you pronounce it slightly differently.

14:18 – 14:22 Norman Schriever

I think your pronunciation is actually correct, I think it’s niche.

14:23 – 14:27 John Coleman

How do you say it again? I always laugh when an American says the word niche.

14:28 – 14:37 Norman Schriever

Niche or something, which is a different word, I think. Totally. But yeah, don’t hold me to a high standard.

I’m only American, you know.

14:38 – 14:45 John Coleman

I’m teasing you a little bit. Because I’m not American, I’m not a teenager. And I, whatever words you use, we understand the meaning of it.

14:46 – 15:01 Norman Schriever

Hey John, remember, we’re Americans, we’re the ones who invented bad mortgages that were doomed to bankrupt banks, okay? So we know what we’re talking about. Okay, well, I haven’t found that against, you know, I’m sorry.

15:02 – 15:06 John Coleman

No matter how you pronounce the word niche, we’re still good, man.

15:07 – 15:33 Norman Schriever

So think about this, too. We were talking about, and this is great that you shed some light on the Flex Mortgage, this new product, and, you know, how it’s similar, but very different from the old Tracker mortgages. But it got me to thinking about 2008 and the meltdown.

And, you know, I was still in the business at the time. So it’s a morbid interest of mine, because I lost a lot of money like everyone. But have you seen the movie, The Big Short?

15:34 – 15:56 John Coleman

I did. I’ve seen it a couple of times, but it’s probably five or six years since I’ve seen it. There’s a couple of those movies that are similar. Is that where this Quant guy was basically saying, you’re going to have to, he’s done all the maths and basically went to listen.

There’s a perfect storm waiting to happen here. These mortgages are all dirty mortgages built in on being sold.

15:57 – 16:27 Norman Schriever

There’s no value. Yeah. And they’re betting on them.

They’re making money on them to fail. And, you know, and it’s, and I forget his name, but it’s all, it’s a true story. I mean, he predicted this thing and no one listened.

Everyone was so driven by greed and like, you know, what are you talking about? The whole mortgage and banking system is going to fail. You’re crazy.

But it, it’s a pretty good movie and it’s hard to make a movie interesting and fun to watch or entertaining just out of mortgage meltdowns. But they managed to do that with The Big Short. I liked that movie.

16:28 – 17:15 John Coleman

Yeah, no, it was certainly good. I probably watched it and you kind of tell me, you always think it’s a bit like when you’re watching, you know, the result of a football match or a sporting event and you I knew that was going to happen and you kind of go, God, I could have made a lot of money if I bet on what I felt. And then you just don’t do it, you know, and I’m not advocating gambling here in any shape or form, but that was a punt, but it was backed up with serious research, basically.

And it’s a bit like the emperor’s clothes. If I don’t know if you know that parable where the emperor’s clothes and the guy is saying, well, he’s not wearing anything. Everyone kept believing in this more of the perfect world.

But the truth was, it was basically mortgages built with mortgages when they weren’t really.

17:16 – 17:47 Norman Schriever

Yeah, yeah, it was crazy times. And it just unchecked greed as a system is that the financial or economic system is not a good look. It just will always implode.

But yeah, that made me think of that movie. So now on the Tea and Mortgage podcast, let’s talk about something a little more pleasant than Tracker mortgages and mortgage meltdowns. And that’s you took a recent trip to London and you got to see Michael Jackson, the musical.

So I want to hear how that was.

17:48 – 18:28 John Coleman

Well, yeah, well, I think he’s going to be controversial in his own right. But I was over at a business conference looking to get some technology ideas. You know, we have always tried to see what the next new thing is to help the business be more efficient.

But it was over there. But I looked to combine a bit of pleasure along with the business trip that when they went to see the Michael Jackson show. I’m going to, how do I describe it?

His life was so complicated. And so there was so much in it. I only knew I back in the day actually saw Michael Jackson at concerts.

18:29 Norman Schriever

And I used to always say, really?

18:30 – 19:26 John Coleman

Yeah. And it was the best concert I was ever at in my life. Right.

Until I went to see Coldplay last year. But that’s probably more recency bias more than anything else. But his life was pretty messed up.

But he came across as such a quiet character in life. And he was very timid. Oh, God, he was quite.

He walked away from his family. They were putting on serious pressure. He walked away from his first business.

And he was just driven. I mean, they would make some really. But the influence of the media, like it was a horrific existence.

Now, that’s just a kind of an overview. The show was absolutely incredible from the dancing, the singing, the music. I would have liked, I would have been a fan of of his music.

So when you hear a song that you love and you see the big song, and you see the dancing, the whole thing was just absolutely incredible.

19:27 – 19:31 Norman Schriever

I could imagine that had to be amazing. And did they have like one actor play him?

19:32 – 19:56 John Coleman

No, actually, it was actually the one main man. Right. Because it was set up.

But I’m giving too much spoiler alert. But it was set up as if he was rehearsing for an upcoming show. Right.

But then he went back. He was kind of then told parts of the story were told in the past that brought him to a point that he was being interviewed by a journalist. Right.

So and then you had a young kid that played him at a very young age. So there were like four different Michaels.

19:57 – Norman Schriever        Ah, OK, that’s cool.

19:58 – 20:11 John Coleman

But it was one guy who was the main man. And he was absolutely incredible. Like, yeah, you felt you were watching him there.

And the show went on for over three hours.

20:12 – Norman Schriever    Yeah.

20:12 – 20:35 John Coleman

And you wouldn’t have felt like I wouldn’t show it. And we go to kind of two and a bit hours. You’re kind of it’s over.

Right. But this was started at seven. And suddenly it was quarter past ten when we were finished.

So I think, wow, where did that time go? But I would normally have argued for a shorter show. But his life was made up of so many different parts that it would have been difficult.

20:36 – 20:45 Norman Schriever

You know, like you said, also, you get caught up in the music. It’s hard not to get caught up and sing along and tap your feet when Michael Jackson sings.

20:46 – 21:14 John Coleman

If you remember, I went over to New York to see My Hero Novak at the end of last year. And I went to see a show there called Chicago. Now, I would rate that even higher than Michael Jackson if I was honest.

He was absolutely incredible. But when I was leaving, I saw Michael Jackson. God, if I was staying another day, I’m definitely going to see that.

So I was able to see it. Anyone that has any liking for Michael Jackson’s music and is interested in his life story, it’s a definite watch.

21:15 – 21:26 Norman Schriever

Cool. Let me ask you this, too. And this is a very ignorant question.

How does London differ from Dublin? Is it night and day? I mean, did you, did you take a flight over there?

21:27 – 22:34 John Coleman

I mean, night and day, I’m definitely a hometown bird because I always think I’m going to get lost. Right. Yeah, it’s huge.

Everything moves so fast. Now, we did a bit of better planning with my mate. We basically, we got a flight that got us to 10 minutes to where the conference was.

And then the hotel we were staying was just half an hour away from where the show was. And then, we got a different, we got a flight back from a different airport.

So we did it quite well. But normally when I go to London, I’m getting on the tube, I’m looking at a green line, a yellow line, I have no idea where I’m going. And invariably I get lost.

But it was a little bit less hectic this time. So planning is definitely the key to go through. You kind of feel like we were walking down West End where all the theatres are, you kind of go, wow, this is amazing, right?

It’s very much alive. And it’s like Dublin is a blip in truth in comparison to London.

22:35 – 22:38 Norman Schriever

But London is also probably the most expensive city in the world, right?

22:39 – 23:25 John Coleman

Well, Dublin isn’t too far behind. I’ve definitely heard people complaining about Dublin from a price point of view, and understandably, so it’s not.

After COVID, everything just went through the roof here because they couldn’t get the staff and everything’s gone up. So Dublin would probably be cheaper than London, but not by a notch. We met people, a couple of girls were talking to us, and the next thing they were saying, they’ve come from Holland to London.

And we said, oh, why don’t you come and visit Dublin? Oh, we hear it’s very expensive. And they were coming to London.

But I still prefer Dublin. It’s my home. There’s no better feeling than coming home to Dublin.

23:26 – 23:34 Norman Schriever

Yeah, yeah, I can imagine. And we have it on our goals that I want to come visit you at some point this year.

23:35 – 23:40 John Coleman

One way or the other, it might be easier for me to get to Spain than you to get to Dublin, but we’ll make something happen. That’s a definite.

23:41 – 24:04 Norman Schriever

Or both or all of the above, right? Well, nice. Well, great.

Thank you, everyone, for listening and subscribing and your support. Tea and mortgage podcast number 28. And now you’ve been enlightened about the new Flex mortgage that is not exactly the tracker mortgage that you know and don’t love.

24:05 – 24:12 John Coleman

You’ve got a much better way of words than I do. I wouldn’t have been able to say it as eloquently as that, but you’ve nailed it.

24:13 – 24:18 Norman Schriever

Yeah, everyone. Well, wonderful, John. Thanks so much.

And you have a good one. And we’ll see everyone next month.

24:19 – 24:32 John Coleman

Thanks, everyone. Thanks for listening. Obviously, as always, if you have any questions, just reach out to me and I’m here to answer all your questions.