Ulster Bank prepares for €477m ‘offset mortgages’ sale by changing loan terms

Ulster Bank is laying the groundwork for the sale of a previously unsellable portfolio of €477 million mortgages by changing the term of the loans, which allowed customers to reduce their interest bill by using savings with the bank.

The bank said on Monday that 4,500 customers with so-called offset mortgages will receive goodwill payments – typically double the amount they would have been expected to save from the feature over the remaining lifetime of their loan.

A minimum ex gratia payment of €5,000 will be given to customers, even if they never used the offset facility, Ulster Bank said in a statement.

The average will amount to €12,650. Customers are also being offered €250 for independent financial advice. The total cost will come to about €58 million for the bank.

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Ulster Bank offset mortgages – offered before the property crash – allow customers to reduce interest costs in two ways: by using savings in another Ulster Bank account to offset part of the loan; and by being able to pay spare cash into the mortgage account while having the flexibility to take it out again.

The second facility – known as a “pay and redraw” feature – will remain in place even after the loans are sold. The loans will also remain on tracker rates, the bank said.

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The move to change the terms of the offset mortgages will pave the way for the sale of the previously unmarketable last major portfolio of Ulster Bank loans as it hastens a retreat from the Irish market.

Less than 10 per cent of the 4,500 offset accounts are classified as non-performing loans, though many will have outstanding arrears cleared by the goodwill payments Ulster Bank is offering.

“The arrangement we have now put in place brings certainty for these customers, it retains as much of the product as possible, in particular the ‘pay and redraw’ feature which reduces interest paid on the mortgage, while recognising the removal of the offsetting feature,” said Ulster Bank chief executive Jane Howard.

“The solution also takes into account the future value of the product because this product is no longer available in the market.”

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The goodwill payments – which are being issued in January – are being calculated by looking at customers’ average offsetting balance over both the last six and two years and using the higher figure as a base.

They also take into consideration market rates out to the end of the term of a mortgage. The average offset loan has 11 years remaining and has a balance of €106,000.

“Ulster Bank acknowledges that each customer’s future offsetting balance could increase on an ad hoc basis (eg receiving inheritance) and that interest rate changes are by their nature, unpredictable,” it said.

“To take account of these factors, we will double the payment to customers subject to their goodwill payment not exceeding the full amount of future mortgage interest they may have paid.”

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All offset customers will have until May of next year to close their deposit or current accounts.

Two-thirds of offset customers have either not used or only minimally used their offset benefit in the past, according to the bank.

The bank has also warned customers to be wary of potential fraudsters looking to take advantage of them.

“Throughout this process of our phased withdrawal from the Republic of Ireland, Ulster Bank reminds its customers that it will never ask them for passcodes or online banking details in a phone call, email, or text – so be alert, as scammers and fraudsters may try to take advantage of the situation,” it said.

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Ulster Bank has already either sold – or agreed to sell – almost €16 billion of mortgages and commercial loans to PTSB and AIB as part of the winddown.

It also agreed to sell most of its remaining loans, comprising performing and non-performing personal and commercial debt with a gross value of €694 million, to US distressed debt group AB CarVal Investors.

The bank continues to have less than €100 million of customer deposits on its books, according to a spokesman.

These comprise savings of offset-mortgage as well as vulnerable and bereaved customers. Ulster Bank will most likely return its banking licence in 2025, subject to regulatory engagement, he said.