Will tracker mortgage be at risk if Ulster Bank closes?
Q&A: Dominic Coyle
Ulster Bank on Dame Street in Dublin: There is likely to be a significant gap between a formal decision and actual closure or transfer. Photograph: Sasko Lazarov/Rollingnews.ie
Having read your article on what customers should do regarding the potential closure of Ulster Bank, I have a follow up question.
For home owners with tracker mortgages with Ulster Bank, are we better to look at options to move our mortgage to another bank or hold out?
If the mortgage is then sold on will we be offered the same terms as our current tracker or be potentially pushed into a higher interest rate?
Mr C.F., email
This is just one of a dozen queries I have had over the past week regarding the potential closure of Ulster Bank and what, if anything, it might mean for mortgage customers – particularly those with tracker mortgages.
These customers may be on excellent interest rates but some, like Ms J.O’S who was also in touch with us, have already had a protracted battle with the bank to be put back on a tracker rate after having got caught up the tracker mortgage scandal for which Ulster Bank and its peers face significant financial penalties.
“I fought long and hard to get it back,” says Ms J.O’S, who wants to know what would happen if the mortgage was now sold on to a “vulture fund”.
The first thing to say is that this is all a little premature. Ulster Bank has not yet made any decision to close. It may not do so.
However, it has let it be known that it is considering such a move and it is fair to say that no sound business would put out word that it might shut up shop if that was not a very real option. Such news, as we have seen with Ulster Bank, tends to unsettle existing customers and is certainly likely to deter any new customers from doing business with it.
So closure must be seen as a real possibility.
But even it is, as I have said before, there is likely to be a significant gap between a formal decision and actual closure or transfer. Banks are complex and highly regulated businesses. Short of catastrophic collapse – most definitely not the position Ulster Bank finds itself in – they are very tightly controlled in how they go about running down the business and transferring customers.
If Ulster Bank does close, it is simply because it cannot see a way of making sufficient profit out of its Irish customers to satisfy the bean counters back at NatWest headquarters in Britain.
So what does this mean for mortgage customers. As of yet, we simply don’t know. There are two broad options:
– the bank could continue to own and hold the mortgages but contract out the servicing of those loans to a specialist finance house;
– the bank could transfer or sell the loans to another financial institution.
The first is what happened for most Danske bank customers when the old National Irish bank / Danske decided to wind down its Irish business about seven years ago. Danske chose Pepper to manage the bulk of its mortgage business – although it did sell them a small percentage of the loans.
Essentially, the bank contracts out the management of the business but it continues to own the loans itself. As it happens, Danske took the servicing of those loans back in house in 2019.
Under the second option, the loans themselves are sold to another player. Given the current state of play in the industry, this is most unlikely to be one of the other mainstream Irish banks: it is far more likely to be a private equity house, sometimes referred to pejoratively as “vulture funds”.
But just because someone else buys the loans, that does not give them licence to tear up your agreement with Ulster Bank.
The important thing, in either case, is that the terms and conditions agreed between the bank and the customer in the mortgage contract continue in force. It does not matter who is servicing the loan and who has taken ownership.
So if you have a tracker mortgage with Ulster Bank, that tracker rate continues to apply regardless of who is managing or taking ownership of the loan.
The same is true if you are on a fixed rate and, if your Ulster Bank contract grants you certain choices on conclusion of a current fixed rate, any new owner or servicing agent must honour those choices.
The Central Bank has rules in place to ensure they do and they cannot sidestep these just because they are not a traditional bank lender.
We are talking heat about performing loans – i.e. mortgages that are in good standing, fully paid up to date. The one issue that people do need to be careful about is that they do not accidentally get into arrears. That can change the game entirely.
If you pay your Ulster Bank mortgage from your Ulster Bank current account – as most people would do – it is all very well knowing your mortgage Ts & Cs are the same but it will be futile if the current account is closed and you have not set up a new direct debate mandate from your new account.
This is likely to be the biggest cause of confusion and the same could be true of any mortgage-related life insurance or payment protection policy offered by the bank or paid from an Ulster Bank current account.
So, if Ulster Bank does decide to wind down the Irish business, your priority should be to organise a smooth transfer of your accounts and subsequent confirmation that direct debit mandates are in place form that new account to meet all critical payments – mortgage, insurance, tax etc.
Another Ulster bank customer, Ms C.M., opened up a current account with Ulster as required to get the lowest interest rate on their mortgage. In the middle of a five-year fix, they cannot just walk away so what happens to them?
She’s right. In all likelihood, they will not be able to walk away and shop around for a new mortgage switch as they would be breaking the terms of their fixed-rate contract with the bank. But, similarly, the bank cannot penalise them for no longer having a current account with it as such accounts would no longer be available if the business winds down.
So she switches her current account and sets up a direct debit to pay the mortgage without penalty.
On the subject of switching, Mr M.C. wants to know what his options are. If he moves, “would it still class as a switch, with another lender affording me the cash back etc some lenders offer?”
Yes. Anyone servicing or buying your mortgage will be governed by Central Bank regulation. And the rules on switching will apply to Ulster Bank customers moving elsewhere in this situation in the same way as they would if you switched to another lender before any wind down by the bank.
If the new lender is offering cash-back or whatever – allowing for the health warnings I always give on such offers – no Ulster Bank customer will be excluded simply by virtue of the mortgage no longer being directly managed or owned by the bank.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.