Will Ulster bank do deals or make a huge loss on Offset Flexible Tracker Mortgages.

fliball123

Has anyone any information on how Ulster bank will manage to get out of not giving customers a write down on these mortgages. It looks like no other banks want anything to do with them and for good reason with the way interest rates are rising. If anyone has savings anywhere near the mortgage amount surely as interest rates rise, Ulster bank will be making a huge loss on these mortgages. These mortgages are also slowing down Ulster banks retreat from the Irish mortgage sector. Could they do what Dankse bank did a few years back?

dotsman

I don't understand. Why do you think ulster Bank would make a (huge) loss on these as interest rates rise?

Also, I would doubt there are many customers who would have savings anywhere close to their loan balance,so imagine that this would very much be an edge case.

fliball123

https://www.boards.ie/discussion/comment/119695700#Comment_119695700

Well with the savings/current account offsetting the amount left to pay on the mortgage it effectively means that Ulster bank is losing more as interest rates go up. So if someone had 100k of a mortgage and 100k in a savings account and offsetting the customer is paying zero on interest. So as interest rates go higher the cost of servicing these mortgage increases. It also leaves it less desirable for other banks to buy so if they want to exit the Irish market cleanly they will have to do something.

dotsman

But is it not being serviced for free by the free money in the savings account? How is it costing the bank anything? The customer is literally funding their own loan.

fliball123

https://www.boards.ie/discussion/comment/119695782#Comment_119695782

Well think about that for minute what are our current interest rates for savings accounts (not much) it will be no where near what the interest rates on repayments of a mortgage are, so they will be paying out more on covering the interest rates on a mortgage and this is increasing and will probably be up at over 4% by this time next year, savings interest rates are usually a lot lower than mortgage interest rates....So if Ulster paid less than 4% at the time of the mortgage drawdown then they will be losing money and if they roll over debt (on an ongoing basis) to new interest rates as some times happens in business they will be losing even more. Also can Ulster bank withdraw completely from the country that it still has business within so there could be the additional cost of having to keep infrastructure and employees working here.

dotsman

But, if the customer owes 100K, and is giving the bank 100K in savings for free, there is no debt that Ulster needs to cover.

If a bank lends 100K, it needs to source that 100K from somewhere (and pay relevant interest on it)

If a bank lends 100K, but the customer gives 25K in savings to offset that, then the bank needs to source 75K from somewhere (and pay relevant interest on it)

If a bank lends 100K, but the customer gives 100K in savings to offset that, then the bank doesn't need to source additional funds. The bank doesn't lose anything.

Likewise, in sourcing additional funds, the banks have access to as much (very close to) free money as they want, as customers keep storing their money in zero (or close to zero) interest rate savings/deposit accounts. Banks have too much of this "free" money on their books at the moment (hence why interest rates aren't rising for savings/deposits)

I just don't see why you think Ulster is losing anything from this (other than opportunity cost)

fliball123

https://www.boards.ie/discussion/comment/119696643#Comment_119696643

They would be losing on the differential of the borrowing cost of the mortgage amount compared to borrowing now for new lending which is going up. While yeah the money can be loaned out, but the bank will need to keep appropriate reserves. Also there will be an outlay to keep a continued presence in Ireland with these accounts.

So say you have 200k mortgage that you got 1.75% above the ECB and Ulster bank got the cash from the ECB at say .5%. The bank is making on this even if the rate goes up. Roll onto today and you have 100k left on your mortgage and 100k in the bank account offsetting, your paying the bank 0% on a mortgage that cost .5% to fund. So every month on that product they are effectively losing money at a rate of .5%

Interest rates are rising due to inflation and for no other reason its an attempt to bring down inflation which will in turn mean less money moving around the economy.

Proof is in the pudding these offset tracker mortgages are the only ones that Ulster cant get rid of so there must be something within the sums that are not adding up correctly and stopping other banks buying them I mean they are leaving Ireland now 18 months as of Feb 2021 and still no takers for these offset tracker mortgages & offset current/savings accounts.

Jim2007

https://www.boards.ie/discussion/comment/119696685#Comment_119696685

I don't know where you get the idea that the can't get rid of them.... The loans will be packaged up and sold off to some fund or other. An important part of constructing such a product will be the need to put in some good loans to make it sweet for the buyer. That means that they will not do deals with people who have the potential to pay off a major part the amount outstanding since they will need to be able to toss those loans into the mix.

fliball123

https://www.boards.ie/discussion/comment/119697038#Comment_119697038

Then why cant they sell them, 18 months on and absolutely nada from Ulster as to what is happening with this particular mortgage product, the mortgage cant just be packaged off as the offset facility account needs to be catered for which saves the mortgage holder a lot if not all the interest on the mortgage. They would be paying a sh1t load of cash like BOI did with the last tracker scandal. As far as I can see they will be making a big loss if any of these mortgage holders has cash in their accounts that offsets a high % of the mortgage.

Jim_Hodge

https://www.boards.ie/discussion/comment/119697052#Comment_119697052

They are not going to get into individual sales. It'll be a job lot. No way in hell will they let an individual have a buy back at a discount. You're trying to make a case for it but, to be honest, it sounds like you have a vested interest and are trying to construct an argument in favour of it.

fliball123

https://www.boards.ie/discussion/comment/119697067#Comment_119697067

I do have a vested interest I just see the expense on the bank and I can point to Danske bank that did individual deals so there is precedent. I cant see a bank taking a risk on these unless there is a huge discount.

Jim2007

They are closing the company down, the loss provisions have already been made, but there is nothing stopping you from trying to negotiate with then and let us know how goes.

fliball123

https://www.boards.ie/discussion/comment/119700870#Comment_119700870

Ah I am easy breezy jim I have the amount there offsetting the amount left to be paid off the mortgage so as interest rate go higher it will cost them more to service my mortgage. Will see how it plays out if they have a game plan for the mortgage product I have

Geuze

Couldn't UB simply keep these mortgages on their books?

fliball123

https://www.boards.ie/discussion/comment/119701525#Comment_119701525

They could it would all depend on how they finance if they continually roll over borrowings to new interest rates then the mortgage becomes more expensive to service as interest rates go higher and then they would also have the extra costs of having to keep staff and infrastructure in Ireland

Geuze

They could be serviced from UK sites.

My old UB mortgage call centre was in Scotland.

Jim2007

https://www.boards.ie/discussion/comment/119701525#Comment_119701525

https://www.boards.ie/discussion/comment/119704153#Comment_119704153

Very unlikely, they can't offer services to citizens in an EU country, without an EU banking licence. And you can't be a bit licensed, so it probably would not be worth the effort. They might have a legal entity in another EU state though or perhaps the new British government will finally reach an agreement about the provision of financial services....

Zippywalk37

Anyone got any new information on this? We don't want to move bank accounts until we find out where it's going (so we will keep all our banking in the same account) Just hope to find out how long we might be waiting.

Q&A

https://www.boards.ie/discussion/comment/119862756#Comment_119862756

How long might you be waiting? The answer is how long is left in your mortgage.

As it stands no one is buying this mortgage book so Ulster won't be able to close it on you.

Don't worry about all the noise about account closures and the like. Unless there is a significant development you're with Ulster for the foreseeable future.

walterking

I really don't know where people get this idea that mortgages of any type lose money for the banks.

For a VERY SHORT period of about 3 months back in about 2012 when funding rates for Irish banks were far higher than the ecb, banks lost money on trackers. The ecb then started their bond buying program and they made profit from that day onwards. The media of course had sensationalist headlines, but of course didn't give the same headlines when it changed

The reason the offset book has not been sold is that it is small, it has conditions and the margin is not great if someone has decent deposits - but its is NOT loss making.

Basically the other banks see it as something that requires too much work and hassle for too little return.

Ulster will probably have to offer a sweetener, but they are very unlikely to spend time offering little discounts to individual holders

fliball123

https://www.boards.ie/discussion/comment/119864711#Comment_119864711

They will lose money as they will have to keep resources open in the republic of Ireland while people have accounts with them. Also the offset mechanism means that if people have savings and anyone hanging on will have savings otherwise they would of locked in a fixed term amount at a lower rate you can see get under 3% for 5 years. So anyone left will be costing Ulster bank cash.

phormium

There is not a loss on the rate for offsets but there is a lot of management that comes with them if you are trying to sell them on to someone. It's not just the mortgage but also the current account and the linking of them, no bank has a similar product so a bank proposing to buy them would need to set up some new IT or whatever is needed to operate them.

If UB needs to keep them and manage themselves then they need a means of still managing a current account with resultant direct debits/debit card etc.

Add to that someone like me who pays zero interest on mortgage because of offset but still wants access to the draw down facility amount should I want it or might want to transfer it to a new property, great prospect for a new bank!

cruizer101

How many offset mortgages would they have at this stage? I can't imagine it makes up a significant part of their loan book, not sure how huge a loss it would be.

phormium

Between 4 and 5 thousand.

Jim2007

https://www.boards.ie/discussion/comment/119865621#Comment_119865621

The bank will cease to exist and there will be no license for them to operate in Ireland so that is not even a possibility.

walterking

https://www.boards.ie/discussion/comment/119865621#Comment_119865621

I really don't understand what you are trying to say. I think you don't fully understand them.

You also seem to assume everyone with one has deposits the size of their mortgage.

Remember, as your balance decreases, the max amount of deposit also decreases.

The bank is never losing money and I would suspect that the overall offset deposit is less than 10% of the value of mortgage debt.

Q&A

https://www.boards.ie/discussion/comment/119867277#Comment_119867277

What you say makes sense for an Ulster Bank that was a going concern that could take advantage of economies of scale. but if it sells off all its other assets its fixed costs are spread over a much smaller pool of assets. An individual loan could be profitable but when you add in fixed costs related to regulation, compliance and whatever else go into running a bank could make it loss making .

There is no point offering individuals deals unless all agree and that's unlikely to happen. If their hands are tied until all of these are off their balance sheet they just need to offer them at a greater discount to another bank. Take the hit and be gone. My guess is they didn't want to impact the price they would get on their normal mortgage book so will wait for the transfer to be completed before marking these down at a discount.

walterking

On a little checking, there maybe be something offered especially if the cost of managing these is high. They don't lose on the rate at the momnet as its just a small extra on their books. But with all these having t&c's of first active rather than UB, and there being very few of them, no bank will touch them - even at a discount - as the work is just too much for little return

Danske offered these too and gave a further discount on the rate and passed the management to Pepper (as low as 0.25 over ecb!). Some did get offered a discount to settle the account immediately

fliball123

https://www.boards.ie/discussion/comment/119866116#Comment_119866116

Then they have an issue of having business in an EU country and no license to operate , when does their license expire does anyone know

fliball123

https://www.boards.ie/discussion/comment/119867277#Comment_119867277

Well mine covers what I have on the mortgage and Ireland does have record savings so I would imagine a lot would have a good chunk covering their mortgage in savings.

walterking

https://www.boards.ie/discussion/comment/119870664#Comment_119870664

I don't think they are going to exit the market entirely. They may keep their license and gradually wind down some accounts but effectively be closed as a retail bank.

Danske bank still operated here for several years after they closed their retail arm (they still operate at a private client and corporate level)

I suspect that they will hand management to Pepper at some point in the future, but I can't see any change in the next 2 years.

Offset mortgages were popular in the UK. In mid 2000's they accounted for 7% of the UK market. First active offered them until 2007, so there could be a substantial number of account holders out there and therefore more likely that UB will let them play out via some service agreement with Pepper or similar

So I wouldn't be counting on any discount

fliball123

https://www.boards.ie/discussion/comment/119871165#Comment_119871165

So you think they will go through the expense of staying in the Ireland for a few thousand tracker offset mortgages?? I am not counting on a discount but are Ulster bank counting on a lot of these mortgage holders who may not have savings switching to a lower fixed rate else where? I can wait, Ulster are getting zero in interest from my mortgage so its up to them. I also have the option of top ups which I will be doing and I will sit that extra cash in my account it costs me nothing and my mortgage has a good 13 years to run. I honestly cannot see any banking entity taking these unless there is a hefty discount.

Q&A

https://www.boards.ie/discussion/comment/119871669#Comment_119871669

To me your logic is the reason why offering a discount to customers makes little sense. If even one offset customer keeps their account open they need to maintain a license here with all the associated costs.

The Danske example is a little different as they were an EU bank so could just move anything left around to their HQ and run it from there. Not so easy for NatWest now they're out of the EU. It would be much neater for Ulster to package them up and sell them to another bank.

At full price they are unattractive but at some discount - it might well be a massive discount that values these things close to zero - these loans will represent a good bet for some bank. The question is how does the discount an AIB/PTSB would need compare to the cost of operating a zombie back for NatWest.

I imagine they are getting the easy to value stuff sold first. Hence the tracker and performing mortgage sales to AIB and ptsb. Then they can turn their attention to this niche book. Even with the best intention Ulster will be here for another couple of years so this could be a slow burner (...or the sale might just get announced out of the blue in the future).

L1979

Spoke to ulster bank today about my offset and it seems there is a possibility that Nat West will take over managing these loans. NW are online anyway and we will have online access only.

how would people feel about only having online access to their deposit accounts and in what jurisdiction would these accounts reside? Would they still be covered by the Irish banking guarantee?

they will be writing to offset customers in the next week to 10 days, so hopefully that will provide clarity!

we can only hope!

fliball123

https://www.boards.ie/discussion/comment/119937683#Comment_119937683

I don't think this would be legal (I could be wrong) to move accounts from an EU country to a non-EU country as you rightly point out all accounts are currently covered by the Irish bank guarantee I am pretty sure that would be a very significant change in the mortgages terms and conditions to no longer be covered by this. I am also not sure about the legalities of not having a physical presence in the country that the loans/security backed by these loans are in. Can I ask was this someone in the know telling you this from Ulster bank?

L1979

I was speaking to a member of UB mortgage team and they were extremely confident communication will be received within a week to 10 days.

I for one would not be thrilled with online access only, to my savings.

Unfortunately, as they have left us in limbo, not knowing what their intentions are, we cannot seek independent advice as to the legalities of their proposal!

fliball123

https://www.boards.ie/discussion/comment/119939152#Comment_119939152

I am looking at a thread on askaboutmoney and it looks like AIB may be getting these but there is an outstanding issue of the offset facility. No idea where the poster is getting the info from though.

https://www.askaboutmoney.com/threads/ulster-bank-offset-mortgages-are-not-being-sold-to-aib.228719/page-4

Cooker1

So I think we will be sold en masse at a discount, then we might be able to pay who we are sold to to buy ourselves out. It would be so much less anxiety inducing to cut a deal now. I owe approx €100k, have €50k in my Offset Deposit account. Ulster are not interested in a settlement. I’ve pointed out my house is worth zero and has to be knocked (Defective Concrete Blocks), and will take €100k on top of gov grant (100% redress me hole) to rebuild. If eg. Pepper manage us for an anonymous biggie financial institution and I point out I need a 100k loan, or they own 100% of my rubble, I wonder will they gladly take my 50k savings to cut me loose?

fliball123

https://www.boards.ie/discussion/comment/120020278#Comment_120020278

Just got a letter from Ulster bank saying there will be no movement for my offset tracker mortgage until the summer of next year. Doesn't look like they have these mortgages sold yet.

The J Stands for Jay

https://www.boards.ie/discussion/comment/119939152#Comment_119939152

What sort of access to your savings are you looking for?

L1979

Well, at present there is a physical branch nearby, as well as having online access. Is it not reasonable to expect this to remain the same going forward?

Q&A

https://www.boards.ie/discussion/comment/120038220#Comment_120038220

Natwest decided it didn't want to provide a banking service in Ireland when they had nearly 2 million customers. In a few months you and a handful of other (offset) mortgage holders may be all that's holding NatWest back from posting their banking licence back to the central bank. The chances of them continuing to offer a branch service is somewhere between slim and none.

To borrow a line from another retailer... When they're gone they're gone

Jim2007

https://www.boards.ie/discussion/comment/120038220#Comment_120038220

In a word No. The entire purpose of this exercise it to exist the market and give up their banking license nothing short of that.

walterking

https://www.boards.ie/discussion/comment/119966363#Comment_119966363

Hard to know when its a new poster, but it would make sense and not too difficult for AIB to set up if the fee was right.

Its still a standard offering by some banks in the UK, so not difficult to implement.

as for @L1979 - The branch will be closing soon

https://www.irishtimes.com/business/financial-services/2023/01/06/ulster-bank-to-give-timeline-for-remaining-branch-closures-by-end-of-next-month/

Cooker1

So what’s the verdict? Add savings to equal the mortgage and not pay any interest, or not? Pros/cons please.

Ulster won’t negotiate with me.

By matching my outstanding mortgage in my offset account, am I severely reducing my chances of future negotiations with whoever ends up owning my mortgage?

Also, from way back, I remember an Ulster member of staff saying that once my savings matched my mortgage, or went over a tipping point, they would automatically be used to pay off my mortgage!

phormium

https://www.boards.ie/discussion/comment/120111057#Comment_120111057

Well that bit about when the savings exceed the balance is not true anyway, I have in excess of my outstanding balance for years and it doesn't trigger a redemption although to be fair that was the case in the original current account mortgages CAM when it was initially launched by First Active. When it was changed to Offset branding by FA there were a few changes to how it operated and that was one so you could well have been told that way back.

I haven't paid interest in years, don't know what negotiations you are doing that it might affect.

aoraki

https://www.boards.ie/discussion/comment/120111057#Comment_120111057

Regarding adding savings to equal the mortgage, if you put those savings on deposit elsewhere you'll get absolutely next to nothing, and what you do get you then have to pay DIRT tax on. If you put them in an offsetting account against your mortgage, then you're essentially getting a return equal to your mortgage interest rate. So if your mortgage interest rate is 3%, your offset savings is saving you that amount. To my mind that is a very efficient use of your savings because I'm not aware of any savings account out there that would give you 3%, and you don't have to worry about DIRT. I'm open to other viewpoints on that though.

Regarding your question about matching your mortgage with savings and that affecting any potential negotiation of a discount, I have no idea if that makes your mortgage more attractive to them or less attractive to them, in the context of them selling the mortgage on to another institution. One one hand, I can't see how they are making money off you if you're not paying interest. On the other hand, your mortgage from their perspective is safe as houses, they know that you have the money to cover it. I really don't know. I imagine that if a buyer is looking at taking these on, first and foremost they will be looking to make money on whatever mortgages they buy. Bear in mind that they will most likely need to offer the same terms and conditions and features as Ulster Bank do, ie. the ability to offset. A buying bank would need to build these capabilities before they can accept them, I'd say if UB find anyone to take these on they will probabably have to offer a big discount. There's also a chance that UB won't find anyone to take these on and will need to keep managing them themselves.

And finally to your last point about your mortgage being automatically redeemed if you match it fully with savings. That does not happen. I'm offsetting the full amount of my mortgage with savings and have been for some time, and that did not trigger an automatic redemption.

fliball123

https://www.boards.ie/discussion/comment/120124078#Comment_120124078

Surely the costs of keeping a banking license and the bank branches open in the country (and they will have to keep some branches open as well, they cannot just walk away from Ireland if they have customers based here.) will be a significant cost. Plus the chances of breaches in the banking terms and conditions could cost fines in the millions. I cannot see any bank taking these there is no profit to be made on anything that has the same amount of savings offsetting the mortgage and they will be out the cost of servicing the customer base in Ireland. For me Ulster bank should let things go as they are for the next 12 months a lot of people will have moved by then the only ones left will be the ones with the offset tracker mortgages, then anyone on the offset tracker should be offered a discount to pay their mortgage off and then they can run for the hills.

aoraki

https://www.boards.ie/discussion/comment/120124120#Comment_120124120

I think there's an element of wishful thinking in that. I would imagine that the vast majority of these mortgages are not being covered entirely by savings. I'd say there's a wide range of how the offsetting is used across the whole mortgage book, ranging from no offsetting being used, to some offsetting being used, to some people fully offsetting. But I'd say there's probably not that many people in that latter category. So this book is probably profitable for some bank that has the capability to manage them assuming the price is right.

I think it will be a job-lot type of situation, they will either offload the whole lot to another bank, or they'll continue to manage them themselves. If they continue to manage these mortgages themselves they could take steps to keep their footprint as minimal as possible, ie. they could go to an online-only model, have an offsite call center to field queries from customers etc. I honestly can't see them offering discounts to customers to redeem their mortgages because what happens if some people can't or won't avail of the discount? They are back at square one and will need to continue managing the mortgage.

But this is all just speculation, us normal punters are only guessing what might happen. We'll know in due course, and there's nobody, apart from Ulster Bank themselves, holding a gun to their heads to get them to conclude their business in Ireland by a certain date. They could be at this for years.

Jim_Hodge

https://www.boards.ie/discussion/comment/120124120#Comment_120124120

I think you're just hoping for, or advocating for, something that would suit you. I honestly can't see it happening. Ulster bank will not deal with each of these mortgages individually. It'll be a job lot sell off or self managing.

phormium

Whatever about offering discounts to redeem the mortgages which as you say would not suit everyone as not everyone can refinance elsewhere a better option might be offer all offset customers a fixed rate with option for back to lower tracker should that be more benefit that makes it attractive to switch to a standard mortgage and leave the offset system and then they could just flog them to where the existing ones went.

Mind you a sweetener of a discount off them might be needed as well but I'd say the right rate could encourage most and any like me who are paying no interest due to offsetting, well I might be happy with the discount as obviously I'm in a position to clear the mortgage anyway if I so choose!

Of course that would require engagement with customers individually which most seem to think won't happen. Many years back when CAM (Current Account Mortgage), the original mortgage name when it was launched, changed to Offset there were changes that customers had to agree to individually regarding the payment options and it was managed. Admittedly a more minor change but if it was done before branch closures then each branch would just have to contact their own customers.