Will the tracker mortgage be at risk if Ulster Bank closes?

After reading your article on what customers should do regarding the potential Ulster Bank closure, I have a follow-up question.

For homeowners with tracker mortgages with Ulster Bank, is it best to consider options to transfer our mortgage to another bank or hold out?

If the mortgage is then sold, will we be offered the same terms as our current tracker or will we potentially be pushed to a higher interest rate?

Mr. CF, email

This is just one of the dozen questions I’ve had over the past week regarding the potential closure of Ulster Bank and what, if anything, it might mean for mortgage clients, especially those with tracker mortgages.

These clients may have excellent interest rates but some, such as Ms JO’S who was also in contact with us, have already had a long battle with the bank to be remitted to a tracker rate after being involved in the tracker mortgage scandal for the which Ulster Bank and its colleagues 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 were now sold to a “vulture fund”.

The first thing to say is that it’s all a bit premature. Ulster Bank has not yet decided to close. It may not.

However, he has made it known that he is considering such a move and it is fair to say that no sane company would put the word that they could close the shop if this were not a very real option. Such news, as we have seen with Ulster Bank, tends to upset existing customers and is certainly likely to discourage any new customers from doing business with it.

So closure must be seen as a real possibility.

But even if, as I said before, there is likely to be a significant gap between a formal decision and the actual closure or transfer. Banks are complex and highly regulated businesses. Aside from a catastrophic collapse – definitely not the position Ulster Bank is in – they are very tightly controlled in the way they run the business and transfer clients.

If Ulster Bank closes, it is simply because it cannot see a way to make enough profit from its Irish customers to satisfy the bean stalls at NatWest’s UK location.

So what does this mean for mortgage customers. For now, we simply don’t know. There are two broad options:

– the bank could continue to own and hold the mortgages but contract out the service of these loans to a specialized finance company;

– the bank may transfer or sell the loans to another financial institution.

The first is what happened to most of the Danske bank’s clients when the old Irish / Danske national bank decided to close its Irish businesses about seven years ago. Danske chose Pepper to manage most of his mortgage business, although he sold them a small percentage of the loans.

In essence, the bank contracts the operation of the business but continues to own the loans itself. As it happens, Danske took over those loans at home in 2019.

In the second option, the loans themselves are sold to another player. Given the current situation in the industry, it is very unlikely that this is one of the other traditional Irish banks: it is much more likely that it is a private equity firm, sometimes referred to pejoratively as “vulture funds”.

But just because someone else buys the loans, it doesn’t give them the license to tear up your deal with Ulster Bank.

The important thing, in both cases, is that the terms and conditions agreed between the bank and the customer in the loan agreement remain in force. It doesn’t matter who is serving the loan and who took ownership of it.

So if you have a tracker mortgage with Ulster Bank, that tracker rate continues to apply regardless of who manages or takes 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 at the conclusion of a current fixed rate, any new owner or service agent must honor those choices.

The Central Bank has rules in place to ensure they do and cannot evade these just because it is not a traditional bank lender.

Arrears

We are talking about performing loans, that is to say mortgages in good standing, fully paid up to date. The only problem people have to beware of is that they don’t accidentally get into arrears. This can completely change the game.

If you pay your Ulster Bank mortgage from your Ulster Bank checking account – as most people would – it is all very well known that your Mortgage Terms and Conditions are the same but it will be useless if the checking account is closed and you have not set up create a new direct debate mandate from your new account.

This is probably the main 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 for from an Ulster Bank checking account.

So, if Ulster Bank decides to close the Irish business, your priority should be to arrange a smooth transfer of your accounts and subsequent confirmation that direct debit mandates are in place from that new account to meet all critical payments – mortgage, insurance, taxes, etc.

Another customer of an Ulster bank, Ms CM, opened a checking account with Ulster as required to get the lowest interest rate on their mortgage. In the midst of a five-year fix, they can’t just walk away, so what happens to them?

You are right. In all likelihood, they won’t be able to walk away and shop around for a new mortgage change as they would break the terms of their fixed rate contract with the bank. But, similarly, the bank cannot penalize them for no longer having a current account with it as these accounts would no longer be available if the business were to end.

Then he changes his checking account and sets up a direct debit to pay the mortgage without penalty.

As for the gearbox, Mr. MC wants to know what his options are. If he moved, “it would still be classified as a breaker, with another lender offering me repayment, etc. Do some lenders offer?”

Yes. Anyone who assists or purchases your mortgage will be governed by Central Bank regulation. And the transfer rules will apply to Ulster Bank clients who move elsewhere in this situation in the same way they would if they switched to another lender prior to any liquidation by the bank.

If the new lender offers cash-back or otherwise – taking into account the health warnings I always give on such offers – no Ulster Bank customer will be barred simply by virtue of the fact that the mortgage is no longer managed directly or owned by the bank.

Please send your questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reading service and is not intended to replace professional advice. No personal correspondence will be made.

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