As Ulster Bank and its UK parent, NatWest, set out in early 2021 to slice up the Irish lender’s then €20 billion loan book for sale, it was clear from the outset that one particular portfolio would be more difficult to get rid of than most: its so-called offset mortgages.
These are loans issued before the crash that were designed to reduce customers’ interest bills by offsetting funds in current or deposit accounts to lower the balance on their mortgage account.
As Ulster sold most of its performing loans to AIB and PTSB and even lured US distressed debt group AB CarVal Investors to take on much of the rest, it was still left with almost €480 million of offset mortgages – and linked deposits – that no one seemed to want.
The bank revealed on Monday it has come up with as elegant as solution as it can find to make the loan book marketable. But it comes at a cost.
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Ulster Bank said it is writing to 4,500 customers with offset mortgages to tell them that it is removing the offset feature but is giving most of them a goodwill payment equating to double the lifetime financial benefit they were expected to get from the feature.
Minimum compensation of €5,000 is being paid, even to borrowers who have never availed off the offset facility, while the maximum is being set at the total future mortgage interest payments a customer would have to pay to the end of their term. The average stands at €12,650 – which, together with €250 Ulster is offering to customers for independent financial advice, will bring the total cost to the bank to about €58 million.
Meanwhile, the borrowers will still be able to avail of a so-called pay and redraw feature on their offset mortgages, where they can pay spare cash into the mortgage account while having the flexibility to take it out again. That – and the European Central Bank-tracker rate attached to the loans – will remain in place even as the portfolio is sold on.
With the portfolio expected to be put on the market next year and customers behind Ulster’s remaining almost €100 million of deposits also set to move in 2024 (holders of savings accounts linked to offset mortgages have until May to close), the bank is currently on track to hand back its licence in 2024.
