In light of the current PTSB deal, what should we do to protect our mortgage tracker with the imminent closure of the Ulster Bank?
Mr JM, email
This is a time of great uncertainty for Irish bank customers. The two main players are leaving the market, and even among those who remain, there are branch closures and other new arrangements.
In recent days, I have had several inquiries related to the departure of both Ulster Bank and KBC and what that means for Irish clients, especially mortgage clients. I’ll try to deal with the ones from the Ulster Bank. I will try to come back to KBC next week.
The bottom line for Irish clients is that they will have fewer banking choices and will lose two of the most innovative and competitive players in mortgages.
But it is important that people know both their rights and the facts.
Last week’s news that Permanent TSB was about to acquire a portion of Ulster Bank’s € 7.6bn loans – in a deal likely to result in UK parent Ulster Bank acquiring a significant stake in the Irish lender, perhaps leading you to believe that your mortgage will be directed towards permanent storage of the TSB (PTSB), but it is not.
As my colleague Joe Brennan As explained, as part of the deal, PTSB will take on a number of different types of loans, including mortgage loans and small business loans. However, the mortgage ledger that PTSB acquires specifically excludes Ulster Bank tracking loans.
Ulster Tracker Credits look doomed to end up AIB… As Joe said last Friday, AIB is in talks to buy a € 6.5 billion Ulster mortgage loan. The main question is likely to be the price. At zero ECB rates, AIB probably expects to receive a loan portfolio at a discount.
So what does all this mean to you?
Nothing special. Regardless of who buys the mortgage for your tracker, they are obligated to abide by the terms of your loan. This means that as long as you make your payments, AIB (if it eventually buys the loan) will have to abide by the terms of the agreement you originally signed with Ulster.
So, if the mortgage agreement with Ulster Bank states that you pay an interest rate no more than 50 basis points above the ECB rate – 0.5 percentage points – AIB or anyone else cannot increase that margin.
You don’t need to do anything to protect your tracker: it is under the protection of the Central Bank and nothing that happens with the closure of Ulster Bank in Ireland will affect that.
Another reader, Mr. B.O.K. has a creditable mortgage at the Ulster Bank. His experience confirms my point of view on the Ulster Bank tracker. First act was acquired by Ulster Bank in 2009, Ulster was required to abide by the creditable mortgage, although it was not offering the product itself at the time.
Mr B.O’C. has benefited from this over the past 12 years without issue. But now he wonders if Ulster Bank’s departure gives him an opportunity. His loan balance is 265,000 euros and he has 227,000 euros in his compensation savings account. This means that he currently only pays interest on his 38,000 EUR mortgage loan.
He is considering offering the bank € 227,000 as a full and final repayment of the loan and wonders if this is possible and if so is it a good idea?
There is nothing stopping you from making an offer, but the question is whether that will be enough to satisfy Ulster Bank – or the Permanent TSB, which will take over the loan.
You want to pay off your mortgage at a discount of almost 15 percent. Even with the fact that PTSB is likely buying a loan portfolio at some discount, it may be too far for them.
Another thing is that, despite all the work related to the division of the bank and the sale of parts of the business, including branches, to various buyers in the framework of complex transactions and in a short time (the deal with PTSB should be completed this year), will Ulster Bank even be in able to consider your proposal? My guess is that they will not be participating in one-on-one presentations on mortgage repayment at this time.
Even if they had the resources to manage it, wholesale tailor-made loan settlements could change the dynamics of what the PTSB believes it buys, which would jeopardize the deal.
There is no reason why you cannot make an offer, but I do not see any positives for Ulster Bank in accepting it at this time.
Is this a good idea at all? I think this is the case if you have no other, more expensive personal loans or outstanding credit card debt – at Ulster Bank or elsewhere – or if you don’t foresee the need to borrow. Mortgage debt remains the cheapest loan for consumers.
Another reason to consider such a move is that the interest rate on your home loan may be higher in PTSB, according to a consumer activist. Brendan Burgess warned and it will cost you.
For many people, the prospect of an interest rate penalty – that is, higher interest rates – at the PTSB will make switching to another mortgage provider after the deal is done something they really need to consider. In your case, however, any move you make to change the provider will mean the end of the bias.
You will be charged interest on the entire outstanding mortgage balance of € 265,000, not just € 38,000 in excess of your compensation savings. This will cause your annual interest account to jump more than fivefold – unless, of course, you physically spend part or all of that 227,000 euros in the credit account to pay off part of the loan.
So yes, of course, propose to Ulster, but don’t be surprised if they don’t respond or refuse right away. Once the deal is closed, there is nothing to stop you from making a similar offer to PTSB, but again, chances are it won’t be accepted. At this stage, you need to calculate the numbers and see what makes sense to you.
AIB is the largest player in the Irish mortgage market these days, even before closing. Followed by Bank of Ireland and together they control over 50 percent of the market, which is actually close enough to 60 percent.
Next comes the permanent TSB, which, according to the financial consultant, has about 15% of the market. Michael Dowlingalthough the bank says it has been doing better recently, with the new mortgage market accounting for nearly 18% of the market in the first quarter of this year.
Ulster Bank also holds about 15 percent of the market, with KBC just over 10 percent.
At the moment, if you are looking for a loan of 80 percent or more, AIB appears to be the most competitive, followed by Ulster Bank and Avant and then constant TSB. Bank of Ireland and AIB’s EBS seem to be the least competitive.
For those with equity capital – a loan of 60 percent or less – looking to change it will find Avant the most competitive, followed by AIB and Ulster Bank. Once again, the Bank of Ireland and EBS seem to be lagging behind.
Please send your inquiries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is intended for readers and is not intended to replace professional advice. No personal correspondence will be conducted.