Q&A: Did Bank of Ireland unfairly deny me a tracker mortgage?

I read recently in your newspaper that Bank of Ireland intended contacting mortgage customers with a view to compensating them for incorrectly denying them cheaper tracker mortgage interest rates.

I took out a Bank of Ireland buy-to-let mortgage in 2005 on interest rates as follows: 2005 one-year fixed 2.95 per cent; 2006 two-year fixed 4.65 per cent; 2008 two-year fixed 5.59 per cent; 2010 three-year fixed 4.95 per cent; 2013 variable 5.5 per cent.

When the fixed rate expired in 2010 and 2013, I was not offered a tracker rate. Did I have a contractual right to be offered a tracker rate post-2010?

Did Bank of Ireland fail to inform me of a cheaper tracker rate to which I was entitled to at the end of my fixed-rate period?

I have not taken up this matter with Bank of Ireland. Should I?

Mr RF, Dublin

I suppose the first thing to say is that, if you have any doubt, you should certainly approach the bank, in writing. As a customer, you always have that right and the bank should be clear in explaining to you – also in writing – why you do or do not have a case.

The Central Bank has been spending a lot of time recently trying to ensure that lenders are treating customers fairly in relation to mortgage loans.

Initially, the focus was on customers who had either switched away from tracker loans or who had the right under their mortgage contract to opt for a tracker rate at the end of a fixed rate period.

The major issue here appears to have been either that it was not clearly explained to customers switching that they would sacrifice the tracker rate without the right to revert, or that customers coming off fixed rates were not offered a tracker rate when they should have been given that option.

More recently, a follow-up examination appears also to be looking at the actual tracker rate applied, whether banks honoured the terms of mortgage contracts they had signed and whether banks were properly transparent and upfront in their communication with customers.

As a result of all this, as you read, the bank has said it is going to contact a number of customers to indicate that an incorrect rate has been applied, to apply the correct rate for the future and to discuss options for compensation.

Interestingly, and somewhat frustratingly, it has chosen not to say how many customers this involves, which does little to engender faith in its commitment to transparency

So what does all this mean for you? Not a lot, I suspect. Essentially, it depends precisely on the wording of your successive agreements in 2005, 2006, 2008, 2010 and 2013. The focus is likely to be on the earlier periods as no bank was offering tracker options in 2010 and 2013.

So what were the terms of the 2005 agreement? Back then, banks were still falling over themselves to lend and ensure they did not sacrifice market share. They had pretty much abandoned the concept of risk management. I would not be at all surprised if your initial fixed loan – even on a buy-to-let mortgage – offered the option of switching back to a tracker at the end of the one-year term.

The same to a lesser degree would be true of the 2006 contract. By 2008, certainly banks were tightening the screw, especially in relation to buy-to-lets.

The issue for you is, first, did the early contracts offer the tracker option at the end of the fixed term? You’ll need to go back and check the paperwork to ascertain this. I hope you still have that available; if not, you’ll need to approach the bank and get copies of that agreement, which is less than ideal.

Assuming the option did exist in any of the successive fixed-loan terms of the contract, the second element is whether you were given this option at the end of the relevant period. Much of the current investigation centres on whether banks simply relied on customers knowing their switching rights rather than outlining that among the options presented at the end of each fixed-rate period.

To argue your case on this issue, you would again need to have the documentation the bank sent as your fixed rate moved to expiry, advising you of the options, or written notes from any meeting (it was quite normal for banks to send out a confirmatory letter following such meetings, covering the issues raised and options discussed, albeit sometimes in fairly sparse terms).

At this remove, relying on unrecorded conversations is unlikely to be successful for either party.

And, of course, it is always possible that the option was there, it was explained to you and it simply suited you to stay on a fixed term at that time. Which is fine but would certainly preclude any right to recompense.

As the right to switch at the end of a fixed rate has been the subject of Central Bank inquiry since about 2010, I would have expected that any issues arising would already have been addressed by the bank in earlier communication. However, if you are genuinely concerned, you should contact the bank and ask for a review of your file.

Is my daughter liable to gift tax on home loan from me?

I wish to give my daughter a loan of about €30,000 to assist her in accumulating the deposit needed for a house. She would then pay me a modest sum monthly.

Will this be treated as a gift under the capital acquisition tax/gift rules? If not should I employ a solicitor to draw up a legal document to verify that this was a loan?

Ms MJ, Meath

The money you give your daughter is either a gift or a loan.

If it is the former, then it will have gift tax implications – though, on its own, no tax bill.

She can discount the first €3,000 as an exempt small gift. The balance – €27,000 – counts against her lifelong gift/inheritance tax exemption which, from a parent to a child, is now €280,000. So, unless she has already received significant gifts from either parent or an inheritance should her father have passed, she is a long way short of a tax bill.

And there is a strong argument that if she needs the cash now to buy a home, it is better that she use part of her tax-free allowance rather than wait until her parent dies to receive money she may no longer need at that time.

If the money is a loan, it needs to be repaid. You can have a solicitor draw up terms but it is not absolutely required. A loan must carry an interest rate that is not seen as unreasonable in comparison with commercial rates. However, any interest, even on a commercial rate, would still fall below the small-gift exemption threshold each year and could be written off by both parties, leaving her free just to repay the capital over time.

One small thing: even though the interest is written off, it would still count as income for you and might have income tax, USC and PRSI implications for you depending on your own financial circumstances.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice