Brendan Burgess
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(Monday, 27 November 2023] Today, Ulster Bank is writing to customers with Offset Mortgage products to advise them of changes necessitated by the Bank’s phased withdrawal from the Republic of Ireland. An Offset Mortgage is one which is linked to a customer’s current or deposit account and enables customers reduce their mortgage interest in two distinct ways.
Ulster Bank is confirming to customers that they will no longer be able to avail of their offset facility, which is one of the ways to reduce their mortgage interest. However, customers will retain their tracker rate and the ability to reduce mortgage interest payments through the ‘Pay and Redraw’ Available Facility feature, the second option available to them to reduce mortgage interest.
In recognition of this change, Ulster Bank will calculate what offsetting would have been worth to each mortgage account had the customer retained and continued to use the feature out to the end of their term, based on past usage. This calculated amount will then be doubled and made as an ex-gratia goodwill payment to customers with the following additional considerations:
Customers are being given six months’ notice to close the savings and current accounts that have been linked to their offset mortgage by 23 May 2024. These account closures are necessary given the Bank’s withdrawal from the market. Customers can continue to offset their credit balances in their linked account(s) against their mortgage until the Offset Arrangement is removed on or after 23 May 2024.
With this announcement today we now have a solution for the vast majority of our mortgage customers, including a very small number of customers with a variation of the offset product.
Ulster Bank has also informed offset customers that their mortgages will remain with Ulster Bank for now but are likely to be included in a future loan sale (customers will still retain their tracker rate and the ‘Pay and Redraw’ facility in the event of the sale). We will write to customers separately with an update on this as soon as it is appropriate to do so.
Ulster Bank Chief Executive Jane Howard said:
“I would like to thank all our customers who have an offset mortgage for their patience as we worked for a long-term solution as part of our phased withdrawal from the Republic of Ireland. 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. The solution also takes into account the future value of the product because this product is no longer available in the market.
“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.”
What is an offset mortgage?
The offset product is a mortgage product with linked current and/or deposit accounts for offsetting purposes. It is effectively a tracker mortgage with additional features. The interest rate attaching “tracks” the ECB rate (ECB+1.15%). The offsetting product features allow a customer to reduce their mortgage interest in 2 ways.
Customers can 1) Offset and 2) ‘Pay and Redraw’ up to the available facility.
How is the ex-gratia goodwill payment calculated?
In recognition of the changes to the customer’s product, Ulster Bank will make an ex-gratia goodwill payment to each customer (one payment per mortgage). A customer’s payment is calculated by considering:
1). Past usage of offset arrangement.
Here we consider the customer’s average offsetting balance over the past six years, as well as the customer’s average offsetting balance over the last 24 months in calculating the customer’s recent offset usage and we use whichever figure is the higher of these two (as of 31 August 2023). We are including the previous 24 months in this calculation to recognise that many customers may have had higher savings during the COVID period and to give the customers the benefit of this in the averaging.
2.) What the customer may have saved in future interest if they were to retain the same offsetting balance until the end of their mortgage term.
In calculating the potential future mortgage interest, we use the higher of the customer’s facility limit or mortgage balance as of 31 August 2023. We also use a forecast of the future interest rate that could apply to the customer’s loan. To do this, we have used a market standard yield curve over the term of the mortgage to maturity.
Ulster Bank acknowledges that each customer’s future offsetting balance could increase on an ad hoc basis (e.g. receiving inheritance), and that interest rate changes, are by their nature, unpredictable. 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.
For customers whose goodwill payment (even when doubled) is less than €5,000 Ulster Bank will top up their payment to €5,000.
We have also included €250 towards the cost of independent financial advice in each customer’s total ex-gratia goodwill payment as they may wish to consider an alternative mortgage product with another provider (customers are not obliged to do this but Ulster Bank has encouraged customers to take independent financial advice on their mortgage).
This means that, even for customers who have not availed of their offset arrangement to reduce their mortgage interest payments or have used it in a limited way, the minimum ex-gratia goodwill payment will be €5,250.
What about customers in arrears?
In cases where the customer is in arrears on their mortgage, the ex-gratia goodwill payment will be used to reduce these arrears. Should there be any surplus after this, the remainder will be paid to the customer. The €250 towards independent financial advice will be paid directly to the customer and will not be used to clear any arrears. In circumstances where the customer’s arrears balance is €1,000 or less, the full payment will be paid to the customer and will not be applied against the arrears balance.
Of customers with arrears balances greater than €1,000, c.40% will have their arrears cleared following the issuance of the ex-gratia goodwill payment.
What happens next for Customers?
All offset mortgage accounts will have the offsetting feature removed from 23 May 2024, meaning customers will no longer be able to offset credit balances in their current or deposit account(s) against their mortgage balance after this date. Customers can continue to offset their credit balances in their accounts against their mortgage until this date.
As the customer will not be able to avail of the offset arrangement, they are being asked to close their linked current and or deposit accounts by May 2024 and are being given the same amount of time to close their accounts as per previous Ulster Bank personal account closure timelines. Customers with current and deposits accounts that can be linked will become non-operational on or after 23 May 2024 and the account will, in effect, be closed. A cheque for the remaining balance in the account will then be sent to the customer.
In recognition of these changes, and the inconvenience caused by removing the offset arrangement, Ulster Bank will therefore make an ex-gratia goodwill payment to each offset mortgage customer. The ex-gratia goodwill payment will be paid into the customer’s account on or shortly after 10 January 2024.
The product, which will effectively become a tracker mortgage, will still track the current ECB interest rate and will not be impacted by the closure of the linked accounts.
Customers will still retain the ability to “Pay and Redraw” their Available Facility. This means customers can still reduce their mortgage balance without reducing their Agreed Facility limit through their normal repayments and/or any additional amounts above them. Customers can draw the additional amounts back out again, subject to their overall Agreed Facility.
If customers have any queries in relation to these changes, they can contact Ulster Bank on 0818 210 260 (00353 1804 7475 if calling from abroad) or they can visit the Ulster Bank Customer Support Hub. For customers who need additional support or may be in a vulnerable situation there is a dedicated phone line on 1800 656 001 (lines open 8am-8pm, 7 days a week).
ENDS
Ulster Bank Provides Clarity for Offset Mortgage Customers
Bank to Make Goodwill Payments to Customers as Offsetting Feature to be Removed
Bank to Make Goodwill Payments to Customers as Offsetting Feature to be Removed
(Monday, 27 November 2023] Today, Ulster Bank is writing to customers with Offset Mortgage products to advise them of changes necessitated by the Bank’s phased withdrawal from the Republic of Ireland. An Offset Mortgage is one which is linked to a customer’s current or deposit account and enables customers reduce their mortgage interest in two distinct ways.
Ulster Bank is confirming to customers that they will no longer be able to avail of their offset facility, which is one of the ways to reduce their mortgage interest. However, customers will retain their tracker rate and the ability to reduce mortgage interest payments through the ‘Pay and Redraw’ Available Facility feature, the second option available to them to reduce mortgage interest.
In recognition of this change, Ulster Bank will calculate what offsetting would have been worth to each mortgage account had the customer retained and continued to use the feature out to the end of their term, based on past usage. This calculated amount will then be doubled and made as an ex-gratia goodwill payment to customers with the following additional considerations:
- All customers will receive at least a minimum ex-gratia goodwill payment of €5,000. For those customers whose ex-gratia goodwill payment is calculated at less than €5,000, Ulster Bank will top up their payment to €5,000;
- The maximum ex-gratia goodwill payment to be made to customers will equate to the total future mortgage interest payments a customer would have to pay out to the end of their term; and
- Customers will also receive €250 for independent financial advice, should they wish to seek advice in relation to their mortgage
Customers are being given six months’ notice to close the savings and current accounts that have been linked to their offset mortgage by 23 May 2024. These account closures are necessary given the Bank’s withdrawal from the market. Customers can continue to offset their credit balances in their linked account(s) against their mortgage until the Offset Arrangement is removed on or after 23 May 2024.
With this announcement today we now have a solution for the vast majority of our mortgage customers, including a very small number of customers with a variation of the offset product.
Ulster Bank has also informed offset customers that their mortgages will remain with Ulster Bank for now but are likely to be included in a future loan sale (customers will still retain their tracker rate and the ‘Pay and Redraw’ facility in the event of the sale). We will write to customers separately with an update on this as soon as it is appropriate to do so.
Ulster Bank Chief Executive Jane Howard said:
“I would like to thank all our customers who have an offset mortgage for their patience as we worked for a long-term solution as part of our phased withdrawal from the Republic of Ireland. 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. The solution also takes into account the future value of the product because this product is no longer available in the market.
“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.”
What is an offset mortgage?
The offset product is a mortgage product with linked current and/or deposit accounts for offsetting purposes. It is effectively a tracker mortgage with additional features. The interest rate attaching “tracks” the ECB rate (ECB+1.15%). The offsetting product features allow a customer to reduce their mortgage interest in 2 ways.
Customers can 1) Offset and 2) ‘Pay and Redraw’ up to the available facility.
- All offset mortgage customers have the ability to offset their mortgage interest. This means that any funds held in either the linked current or deposit accounts are used to reduce the amount of mortgage interest paid.
- The second feature is Pay and Redraw of the Available Facility. This means that customers with funds on deposit can move those funds into their mortgage account thereby reducing the mortgage balance amount owed and reducing the amount of mortgage interest to be paid. Customers also have the option to reduce their monthly repayment amount under this feature. However, the customer can pull back/ withdraw those funds (up to the limit of the facility) should they require the funds subject to the terms and conditions. The facility limit resets on an annual basis.
For demonstration purposes – If a customer has a mortgage of €100,000 and deposits of €25,000, they can move the €25,000 into their mortgage account thereby reducing the balance to €75,000 thereby reducing their future mortgage interest payments. If the customer needs it, they can redraw the €25,000 on a reducing balance basis as once the annual facility limit review happens this will reduce in line with mortgage amortisation. To avail of this feature, the customer must not be in arrears.
How is the ex-gratia goodwill payment calculated?
In recognition of the changes to the customer’s product, Ulster Bank will make an ex-gratia goodwill payment to each customer (one payment per mortgage). A customer’s payment is calculated by considering:
1). Past usage of offset arrangement.
Here we consider the customer’s average offsetting balance over the past six years, as well as the customer’s average offsetting balance over the last 24 months in calculating the customer’s recent offset usage and we use whichever figure is the higher of these two (as of 31 August 2023). We are including the previous 24 months in this calculation to recognise that many customers may have had higher savings during the COVID period and to give the customers the benefit of this in the averaging.
2.) What the customer may have saved in future interest if they were to retain the same offsetting balance until the end of their mortgage term.
In calculating the potential future mortgage interest, we use the higher of the customer’s facility limit or mortgage balance as of 31 August 2023. We also use a forecast of the future interest rate that could apply to the customer’s loan. To do this, we have used a market standard yield curve over the term of the mortgage to maturity.
Ulster Bank acknowledges that each customer’s future offsetting balance could increase on an ad hoc basis (e.g. receiving inheritance), and that interest rate changes, are by their nature, unpredictable. 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.
For customers whose goodwill payment (even when doubled) is less than €5,000 Ulster Bank will top up their payment to €5,000.
We have also included €250 towards the cost of independent financial advice in each customer’s total ex-gratia goodwill payment as they may wish to consider an alternative mortgage product with another provider (customers are not obliged to do this but Ulster Bank has encouraged customers to take independent financial advice on their mortgage).
This means that, even for customers who have not availed of their offset arrangement to reduce their mortgage interest payments or have used it in a limited way, the minimum ex-gratia goodwill payment will be €5,250.
What about customers in arrears?
In cases where the customer is in arrears on their mortgage, the ex-gratia goodwill payment will be used to reduce these arrears. Should there be any surplus after this, the remainder will be paid to the customer. The €250 towards independent financial advice will be paid directly to the customer and will not be used to clear any arrears. In circumstances where the customer’s arrears balance is €1,000 or less, the full payment will be paid to the customer and will not be applied against the arrears balance.
Of customers with arrears balances greater than €1,000, c.40% will have their arrears cleared following the issuance of the ex-gratia goodwill payment.
What happens next for Customers?
All offset mortgage accounts will have the offsetting feature removed from 23 May 2024, meaning customers will no longer be able to offset credit balances in their current or deposit account(s) against their mortgage balance after this date. Customers can continue to offset their credit balances in their accounts against their mortgage until this date.
As the customer will not be able to avail of the offset arrangement, they are being asked to close their linked current and or deposit accounts by May 2024 and are being given the same amount of time to close their accounts as per previous Ulster Bank personal account closure timelines. Customers with current and deposits accounts that can be linked will become non-operational on or after 23 May 2024 and the account will, in effect, be closed. A cheque for the remaining balance in the account will then be sent to the customer.
In recognition of these changes, and the inconvenience caused by removing the offset arrangement, Ulster Bank will therefore make an ex-gratia goodwill payment to each offset mortgage customer. The ex-gratia goodwill payment will be paid into the customer’s account on or shortly after 10 January 2024.
The product, which will effectively become a tracker mortgage, will still track the current ECB interest rate and will not be impacted by the closure of the linked accounts.
Customers will still retain the ability to “Pay and Redraw” their Available Facility. This means customers can still reduce their mortgage balance without reducing their Agreed Facility limit through their normal repayments and/or any additional amounts above them. Customers can draw the additional amounts back out again, subject to their overall Agreed Facility.
If customers have any queries in relation to these changes, they can contact Ulster Bank on 0818 210 260 (00353 1804 7475 if calling from abroad) or they can visit the Ulster Bank Customer Support Hub. For customers who need additional support or may be in a vulnerable situation there is a dedicated phone line on 1800 656 001 (lines open 8am-8pm, 7 days a week).
ENDS
