The uniquely one-sided nature of mortgage contracts

Q&A: Q I'm currently locked into a two-year fixed interest mortgage rate of 5.4 per cent with Permanent TSB, which will expire in June. My loan offer states that, on expiry of the fixed term, the rate applicable to my mortgage will be the "then current PTSB tracker rate".

I’ve been trying to establish what exactly this rate is. PTSB withdrew tracker mortgages for new business some time ago, and existing customers on trackers all have differing margins. My concern is that the bank will decide an exorbitant tracker margin once my fixed period expires. Can you shed any light on this?

S McD, e-mail

A Your concern is well founded. At the time you locked in to your fixed rate, tracker mortgages were still all the rage. Lehmans was still with us and banks were borrowing money at historically low prices which made the tracker model viable.

However, the collapse of the banking system and the consequent turmoil in money markets meant banks then had to pay well above the European Central Bank rate for their funds. It no longer made sense to keep mortgage interest rates in lockstep with the ECB rate, and trackers were withdrawn.

Those people still on trackers thanked their lucky stars – especially as banks looked to increase their lending margins – and people in your position would surely have congratulated yourselves on the foresight to keep the tracker option open at the end of your fixed term.

Unfortunately, bank contracts are uniquely one-sided documents – banks get all the opt-outs, and you get to make all the commitment. In this case, as you note, Permanent TSB is committed to honouring your ability to switch to a tracker rate this June – but only at the “then current Permanent TSB tracker rate”.

While trackers no longer exist for new customers, the bank is obliged to have a tracker rate for customers such as yourself with contractual rights to such an option.

But at what rate? Remember, in their prime, tracker rates were within one percentage point, or certainly 1.5, of the ECB rate. I checked with Permanent TSB and they tell me the current tracker rate offered to residential mortgage customers in your position is ECB + 3.25 percentage points (or 4.25 per cent, given current ECB rates).

“However, these rates are current and may change prior to expiry of the customer’s fixed rate term in June 2010, as our rates are under constant review,” they continued.

The lender goes on to note that “provided this customer is a residential mortgage customer, he would also be offered LTV [loan to value] variable rate of 4.15 per cent (if LTV is greater than 80 per cent) or 4.05 per cent (if LTV is less than 80 per cent).”

In other words, the bank has crudely rendered your tracker option null and void. If you insist on exercising it, they will penalise you by charging in excess of their current variable rate. And don’t be fooled by the reference to possible change in the rate by June – any change will be upwards.

It is a disgraceful performance. When you made your decision on which rate option to choose, you clearly had an expectation that the tracker option would be favourable in comparison to a standard variable rate.

Now that the climate has changed, the bank has effectively rewritten the rules using that uniquely one-sided wording in the contract.

As always with the banks, the letter of the law is everything; the spirit counts only when they soft-soap potential customers in their marketing.

Is it any wonder they turned to the man who played a Sopranos gangster for their ads?

Q If my original mortgage with Ulster Bank was a tracker, and I fixed for three years, do they have a right to change my mortgage to variable only after the three years is up?

OG, e-mail

A As above, everything depends on the wording of the contract you entered. However, if you fixed for three years, I can only assume you abandoned your tracker rate to do so. By their nature, tracker rates “track” the European Central Bank rate – they are not fixed.

Assuming this is, in fact, what happened, there is no chance of you reverting to a tracker rate in the current climate unless that option is specifically provided for in your contract and, as you can see above, even then such commitments are effectively worthless.

I imagine the bank has every right in this instance to offer either a variable rate or, possibly, another fixed rate.

Q I understood that Ulster Bank had sorted out the problems with its Visa debit card. But when I tried to pay waste charges to my local authority online, my card was rejected. The same happened when I tried to pay using the card by telephone. I was told the number was rejected.

I could contact no one at the council, and the woman I spoke to at Ulster Bank’s customer service unit said she had dealt with a number of similar queries. Is there a problem, and why?

LM, Dublin

A You would certainly think that an organisation like one of our larger, urban, local authorities would ensure their systems were updated as payment methods change – given the volume of online or remote payments they are likely to receive.

I have spoken to the council in question and they tell me this is the first such complaint they have received. They assure me they will pursue the issue “in conjunction with those companies which provide our online and telephone-based payment services”.

I also contacted Ulster Bank. Again, they had not come across problems with local authority payments, but will pursue the matter with Visa, which handles the communications and updates for entities operating these remote payment options.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or e-mail dcoyle@ irishtimes.com. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the column. No personal correspondence will be entered into.