Ulster Bank ends interest-only anomaly

ULSTER Bank has notified more than 1,000 customers that they have been underpaying their mortgages and are liable for the additional capital.

Some customers may be affected to the tune of €30,000 according to a report carried in the Irish Independent today.

The underpayment problems arose following the transfer of mortgage accounts from First Active to Ulster Bank a number of years ago. Ulster Bank had owned First Active for a number of years before it announced that it would wind down the brand and merge accounts under the Ulster Bank name.

Affected customers had taken out mortgages opting for interest-only repayments over three years. After the interest-only period expired, they agreed to pay both the capital and interest. In mortgage lending, this is a very simple arrangement.

Typically, mortgage lenders would notify customers in advance that their interest-only arrangement was about to expire to prepare them for higher monthly repayments.

It appears that the vital details got lost in the transfer of mortgage accounts from First Active to Ulster Bank and customers remained on interest-only arrangements far longer than they should have.

But this is not a very complicated case. Some customers would have undoubtedly have been aware of their interest only arrangements and a broad timeline of when it would end even if others may have simply forgotten. Either way, the repayment of capital is a core feature of mortgage lending.

In the case of Ulster Bank, I would hope that it provides its customers with a range of easy-pay remedies. The bank must ensure it protects its brand after the IT debacle of last summer.

On the other hand, for those customers affected, this case highlights the importance of knowing ones personal finances forensically and planning accordingly. The ending of an interest-only arrangement is a significant financial event that has significant financial implications at household level. Not knowing in advance that an interest-only arrangement was about to expire, relying instead on a bank to do so sends a dangerous message – that some customers rely on banks for important aspects of their personal financial well-being.

Of course, it is also possible that some affected Ulster Bank customers may have been aware of the bank’s error all along, hoping that the error would remain undetected for as long as possible, enjoying the financial breathing space it afforded.

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