# PTSB reported to be making limited offers to customers to come off trackers



## Brendan Burgess (20 Mar 2011)

According  to an article in today's Sunday Business Post, PTSB will be formally offering a deal to customers to switch off trackers. 

A few options are being discussed including offering  "€10,000 in cash for every 1% increase in the rate being paid".  As it's written in the article, it makes no sense, as the compensation would have to vary in line with the size of the mortgage and the remaining period. They are working on devising a claw-back mechanism in cases of early redemption of loans.

I can't really see why anyone would come off a tracker and go onto a  discretionary variable rate given PTSB's recent history of rate  increases. 


They are also considering offering a 5% write-down on capital for making capital repayments.


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## The_Banker (20 Mar 2011)

[broken link removed]

Permanent TSB, Ireland’s biggest mortgage lender, has outlined plans to buy back the principal on tracker mortgages in exchange for customers accepting rate rises, according to industry sources.

The offer, which has been discussed at the highest level, but has not been approved, would see PTSB write off €10,000 on a mortgage - or pay it in cash - for every 1 per cent increase in the rate being paid.

The idea is one of a number of creative options being considered by the bank’s executives to help the heavily indebted institution reduce the level of assets on its balance sheet and rebuild its weak profit margins.

The bank is also looking at schemes to encourage borrowers to pay down the principal on their loans ahead of schedule, including one which would knock up to an extra €500 off the principal for every €10,000 paid.

It is understood executives want to devise fail-safe clawback terms before offering any of the incentives being reviewed, as gains from rate rises could be wiped out by increased arrears or early redemptions on adjusted loans.

Half of PTSB’s €38 billion in loan assets are tracker mortgages that are losing money because of the high cost of capital the bank must pay in the open markets to fund them.

The bank has led the market in increasing rates on variable mortgages.

The bank must reduce its loan-to-deposit ratio to 120 per cent under the terms of the EU-IMF bailout.

PTSB’s ratio is the worst in Irish banking at about 200 per cent, down from more than 250 per cent following its acquisition of Irish Nationwide’s deposit book last month.

Mortgage industry sources said they expected PTSB to move aggressively against delinquent buy-to-let borrowers in the coming months, as arrears were about 25 per cent of the book.

‘‘They’re going hell for leather," one mortgage broker said.

‘‘They’re not interested in sob stories. They’re going to nail them."


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## cork_south (21 Mar 2011)

Irish Life & Permanent Plc is not considering offering “lump sum mortgage debt forgiveness” in exchange for customers making higher monthly payments on loans that track the European Central Bank benchmark rate, a spokesman for the company said. 
 “We are looking at a lot of options for our tracker book, but the idea of lump sum mortgage debt forgiveness in exchange for customers making higher interest payments is not under consideration,” said Ray Gordon, a spokesman for Irish Life, by telephone today. 
 The Sunday Business Post reported today that Irish Life’s banking unit Permanent TSB was considering offering customers on ECB tracker rates the chance to write off 10,000 euros of a mortgage for every 1 percentage point increase in the rate being paid, the newspaper said. Half of the bank’s 38 billion euros of loans are ECB tracker mortgages, it said. 
 To contact the reporter on this story: 
 To contact the editor responsible for this story: Edward Evans at  eevans3@bloomberg.net


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## Bronte (22 Mar 2011)

I cannot, except for one scenario see how the PTSB offer would in any way be worthwhile to borrowers. It would be madness for people to go from say 2.5 to nearly 6% (not sure what the variable PTSB rate is). I'm surprised the regulator or consumer body to protect customers isn't warning people on the dangers of this.  Haven't we learnt anything.


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## Brendan Burgess (22 Mar 2011)

Hi Bronte

As I said in the original post



> As it's written in the article, it makes no sense



Now, as Cork South has reported, PTSB has denied it. 

The Regulator doesn't need to take any action until there is an actual proposal.


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## Bronte (22 Mar 2011)

It was discussed at length on RTE radio yesterday so I was assuming it is real but as there are kids in my house I didn't hear the full thing about it being a proposal and not actually a real offer.


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## JoeB (22 Mar 2011)

The amount of the required reduction could be calculated exactly for a fair result for everyone. 

The reduction should be expressed as a (percentage) reduction in the capital C, for a loan of remaining term 't', with a tracker rate of 'r', and a new rate of 'r+4' (for example).

The banks will have made this calculation and are likely to only offer a deal that disadvantages the customer. (is this legal, for the bank to knowingly offer a bad deal?)

So customers should know the required reduction and ask for more. 


The reduction could be as high as 50% or 60% off the capital. It's the difference between the tracker rate and the new variable rate that's important. I believe 1% should be added to this current difference, so that future increased differentials are allowed for.



So, which would cost the customer more over the life of a loan?

Paying back 250,000 at a tracker rate of 2%, over 20 years. ..?
or
paying back 110,000 at a variable rate of 6%, over 20 years.  ?

I think the original tracker may be best in that situation....


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## Brendan Burgess (22 Mar 2011)

I heard Michael Dowling talking about it on RTE yesterday as well and he clearly referred to it "as reported".


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## JoeB (22 Mar 2011)

Just to add to my previous message..


So, which would cost the customer more over the life of a loan?

Paying back 250,000 at a tracker rate of 2%, over 20 years. ..?
or
paying back 110,000 at a variable rate of 6%, over 20 years. ?

_figures below are wrong, sorry about that_
*I think the customer will pay 305,783 euros in total for the tracker rate, and a massive 331,806 on the reduced capital with an increased rate.*
_figures above are wrong, see later posts for correct figures._


This shows how large the reduction needs to be. Most people would be very happy to hear that the 250K owed has been reduced to 110K.. but they would lose  out.

There is another piece of info. In some cases, (if you have 110K for example),.. you may be better off taking an unfair reduction, if this allows you to pay back the mortgage and thus avoid interest payments. This is intangible, but it's the only way this scheme can be made to work.


_'Incorrect figures replaced by ??? below... It's embarrassing that I said that the banks were bad at maths!_
For the above example.. I think the capital needs to be reduced to ???, from 250,000 in order not to lose out with a 4% interest rate rise. (total payback ???). That's a capital reduction of ??%, and it shows how stupid the banks were to give out trackers.. they're supposed to be good at maths.


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## jhegarty (22 Mar 2011)

JoeBallantin said:


> So, which would cost the customer more over the life of a loan?
> 
> Paying back 250,000 at a tracker rate of 2%, over 20 years. ..?
> or
> ...




The current state of the ECB been well below market rates is not the normal situation. It may last 3 years , 10 years or even 15 years.  But at some stage the gap between your 2% and 6% will start to narrow.

Eventually the two rates (tracker/variable) should come back together (or within 1%/2%) as they were in 2004/2005.

Of course guessing when is the crystal ball part of the argument.


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## JoeB (22 Mar 2011)

Were the rates that close in 2004/2005?

If the ECB base rate rises to 3% (from 0% or 1% currently) then the ECB + 1.5% trackers will be 4.5%. 

I'm not sure if variable rates would be as low as 6.5% in that situation. The bank would be free to raise them as high as they want, perhaps to 9% or 10%

It's a fact that Irish banks can't borrow at the rate that they're tracking.

Perhaps the low variable rates in 2004/2005 were an anomaly, and they may not return.


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## Brendan Burgess (23 Mar 2011)

reports on it again today.



> Permanent TSB is understood to be considering offering mortgage holders a credit for additional payments.
> 
> 
> 
> ...


and from the same article 


> Last month it emerged that some heavily-indebted mortgage customers of [broken link removed] of Scotland ([broken link removed])  have managed to get some of the debt written off. The bank, which shut  down operations here last year, admitted it was working with customers  to "restructure their debt in exceptional circumstances".


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## Brendan Burgess (23 Mar 2011)

> It is also looking at allowing those who are moving house to retain their trackers, in return for paying a slightly higher rate.



This is a very interesting initiative and would allow a lot of people to move who won't otherwise move.


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## NorfBank (23 Mar 2011)

This [broken link removed]first did the rounds back in May 2010, it has since gathered pace but if the banks are doing deals they are keeping them very quiet.

Editorial

_Someone who pays off €100 could get credit for €103 under the scheme_ - so if I pay €100k off my tracker, they will reduce it by €103k or am I reading this wrong?


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## NorfBank (23 Mar 2011)

JoeBallantin said:


> Just to add to my previous message..
> 
> 
> So, which would cost the customer more over the life of a loan?
> ...


I think you need to check your figures Joe

_paying back 110,000 at a variable rate of 6%, over 20 years. ?
_Repayments on this would be €189,136.80

_I think the capital needs to be reduced to 75,000, from 250,000 in order not to lose out with a 4% interest rate rise. (total payback 305,776)_
Repayments on 75k at 4% over 20 years would be €109,077.60


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## Mrs Vimes (23 Mar 2011)

NorfBank said:


> _Someone who pays off €100 could get credit for €103 under the scheme_ - so if I pay €100k off my tracker, they will reduce it by €103k or am I reading this wrong?



That's what I'm reading too.

Would this apply to all payments or just those above the agreed level? ie if you shorten the term would all the overpayments be credited as 103% or do they just mean lump sums?


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## JoeB (23 Mar 2011)

Yes, figures are incorrect.  Sorry about that.

I think this discussion needs accurate figures in order to see what a fair offer would be. It's an issue that may affect many people.

What is a fair reduction in the capital if someone is moved from a tracker of 2%, on 250,000 with 20 years remaining?


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## DB74 (23 Mar 2011)

It will only make sense for people to take the offer if they have the financial capacity to build up a lump sum to redeem the mortgage in the near future (say < 10 years anyway) or if they plan to move home in the near future.

Otherwise the repayments remain the same but home-owner is now at the mercy of the mortgage lender AND the ECB as opposed to just the ECB.


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## DB74 (23 Mar 2011)

JoeBallantin said:


> Yes, figures are incorrect. Sorry about that.
> 
> I think this discussion needs accurate figures in order to see what a fair offer would be. It's an issue that may affect many people.
> 
> What is a fair reduction in the capital if someone is moved from a tracker of 2%, on 250,000 with 20 years remaining?


 
*THE FOLLOWING EXAMPLE IGNORES POSSIBLE INTEREST RATE INCREASES AND THE EFFECT OF MORTGAGE INTEREST RELIEF*

Using the mortgage calculator on useyourmoney.ie (link below):

A €250K mortgage with a 2% rate over 25 years would equate to total repayments of €317,230

If the rate moves to 6% then a mortgage of €165K would equate to total repayments of €314,137

So a reduction in principal of €85K would leave the homeowner in effectively the same financial position (well actually approx €3K better off).

However the homeowner is at the mercy of the bank who can increase the rate without the ECB increasing the rate

eg - if the bank increased the rate to 7% the day after the deal was signed, the homeowner would pay a total of €343,095 over the 25 years, an increase of almost €30K from the 6% figure

In that case I would be looking for compo of approx €50K on top of the €85K to entice me off my tracker

I can't see any bank writing off €135K of a €250K mortgage

http://www.itsyourmoney.ie/index.js...=118&nID=298&gclid=CPr_24O-5KcCFUEb4QodyFxu-g


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## DerKaiser (23 Mar 2011)

JoeBallantin said:


> Yes, figures are incorrect. Sorry about that.
> 
> I think this discussion needs accurate figures in order to see what a fair offer would be. It's an issue that may affect many people.
> 
> What is a fair reduction in the capital if someone is moved from a tracker of 2%, on 250,000 with 20 years remaining?


 
€175k @ 6% or €190k @ 5% produces the approx same repayments as €250k @ 2%.

There are at least two reasons why the bank wouldn't give you the full reduction in capital to move rates:

1) For it to be worth the banks while they would have to be sure that you would stick out the 20 years in either situation (in reality people switch mortgages and move house)

2) The banks are reliant on expensive wholesale funding at the moment.  This will not persist over the next 20 years.  If the banks build up their deposit base and the ECB rate goes back to 4%, they might get away with paying 2% on deposits and receiving say 5% on mortgage interest rates.  This might not happen in the immediate future, but if I was a bank I wouldn't be capitalising tracker losses over 20 years on the assumption they will never again have access to funding cheaper than ECB +1%.


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## NorfBank (23 Mar 2011)

I'm with Der Kaiser on this one, most trackers are 20 years plus, plenty of time for the lenders to make a profit on them.

On point 1, the lenders could have some sort of clawback condition but this could be messy.

[broken link removed]


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## minion (23 Mar 2011)

I wouldnt go for any of those options if there are conditions.
At the moment for people on trackers, the bank has no power to screw you.  And they are very good at that as we've seen the non-stop recent rate rises.
Basically the bank wants it to appear that you are gaining, and then lock you in so that it is actually them gaining in the long run, with no advantage to you at all.

Keep your potential overpayments in the highest interest account you can find.  That way you are getting interest which is greater than the rate on your mortgage.  If you feel like paying a lump sum off the mortgage at a later date, or when the interest rates no longer work in your favor, do so.  This way you are winning, and you are in total control of your money.

If the bank offer you a nice lump off your mortgage in exchange for getting you off the tracker, ONLY TAKE IT IF THERE ARE NO CONDITIONS ON WHEN YOU ARE ALLOWED TO PAY OFF YOUR DEBT.  That way you could accelerate payments or even pay it off completely if you have the funds.  But you do not relinquish control to the bank.

Remember, the bank is still trying to make a profit off you.  They are not doing you any favors here unless you remain in control.


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## JoeB (24 Mar 2011)

DB74 said:


> *THE FOLLOWING EXAMPLE IGNORES POSSIBLE INTEREST RATE INCREASES AND THE EFFECT OF MORTGAGE INTEREST RELIEF.... *



Interesting point.

The mortgage interest relief is paid by Gov.ie..    i.e someone else. So again, people may be better off with a mathamathically fair deal, as some of the extra interest will be paid by the Gov, so the mortgage holder benefits.

But the Gov can change the rules about relief...

I think it'd be possible to work out how the interest relief affects the calculations although it'd be slightly complicated.




For people interested in maths...
This link
oakroadsystems.com/math/loan.htm

gives a complete mathamathical breakdown on how these figures are calculated. It also links to an Excel file that contains the formulas and performs all the calculations as well, very useful, and the results agree with previous knowledeable posters. 

The calculations are complicated, involving exponents, logs and geometric series. Some variables cannot be solved for exactly, and numercial or approximate methods must be used. (Newtons Method etc, explained in above link.. this applies to solutions for the interest rate.)

Quote from above link


			
				http://oakroadsystems.com said:
			
		

> Interest Rate
> 
> This one, unfortunately, is trickier. Mathematicians say that there is no closed-form solution for interest rate, meaning that no straightforward formula exists to provide an exact solution with i on the left and other variables and functions on the right, in a finite number of steps. You can still find i, but you have to work for it. Here are several methods to choose from:
> ....




Cheers


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## Tailspin (24 Mar 2011)

I've run a couple of scenarios on my own debt which assesses what is a fair number in terms of giving up your tracker.  Based on funding to me at 2%, the banks being funded at 6%, a discount rate of  cashflows of 12% (may not be appropriate), and the fact that I will see the mortgages I have run both full terms (ie. 20 and 30 years remaining) at a linear declining balance

The outcome is that the bank would need to compensate me 36% debt write off, ie. €36k in credit for every €100k I chose to pay down in cash, to give up a tracker on 2% and move to a SVR of 6%.  I'm interested in people's challenges of this analysis.  Obviously it assumes an ongoing differential of 4% between the banks cost of funds and the tracker rate, so assumes the banking situation doesn't really improve significantly in 5-10 years.

Based on PTSB's reported 3% 'bonus', and my 36% needed... I would beware.  Additionally, any offer is naturally going to be in the interests of the bank, so the only way to do it would be to pay down the mortgage immediately after the move to SV rates.

Any thoughts on this.


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## callybags (24 Mar 2011)

The banks are never going to compensate you fully. Why would they?

If they offer you a deal, then it will definitely be in their favour as far as they have calculated.

It is similar when the banks offer fixed rates. They expect to make more out of it, otherwise they wouldn't be offering them.


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## Bobbyg (24 Mar 2011)

Based on some of the examples on the previous page if the banks were to write of approx 80k on a 250k mortgage and switch people from tracker to standard variable they would still receive the same amount of money over the course of the loan. If this is the case is it not in their interest to try and do this if they could lock people in for the full duration on the balance?


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## Brendan Burgess (24 Mar 2011)

Folks

As the calculations here were very confusing and used wrong figures, I have started a fresh Key Post on the topic here.

http://www.askaboutmoney.com/showthread.php?t=153229

Brendan


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## minion (24 Mar 2011)

If you were stressed and needed to restructure the mortgage deal, then the bank would nail you to the wall.

In this case, the bank is stressed and needs to restructure the mortgage deal.  And yet they still want to nail YOU to the wall.

Dont accept that kind of treatment.


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## NorfBank (11 Apr 2011)

*PTSB To Reward Trakcer Overpayers*

Here we go again or will it actually happen?

[broken link removed]in the IT.

For every €1000 paid off, PTSB will reduce sum owed by €1050.

Handy if you are already overpaying but will it incentivise those saving in a high interest current account to start overpaying their mortgage instead?


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## Howitzer (11 Apr 2011)

NorfBank said:


> Here we go again or will it actually happen?
> 
> [broken link removed]in the IT.
> 
> For every €1000 paid off, PTSB will reduce sum owed by €1050.


Sounds better than "For every €100 paid off, PTSB will reduce sum owed by €105"


NorfBank said:


> Handy if you are already overpaying but will it incentivise those saving in a high interest current account to start overpaying their mortgage instead?


Believe it not there are people about who are in a position to over pay their mortgages or pay lump sums.

I have a friend who I had to almost physically restrain from paying off a significant lump some last year in anticipation of PTSB being forced into this situation - by the sheer weight of numbers.

Again I had to force her to stop overpaying a month ago. There is no likelihood the bank would offer the same incentive to someone who is already overpaying.

There are an awful lot of people sitting on highly competitive trackers. Whilst a lot may be struggling to meet repayments another significant number of quietly trying to pay down their debts to get out of Neg Eq and move on with their lives. These are financially astute and will have been waiting on a deal like this. If only because it has been so widely flagged at this stage.


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