Bank warns rules will hurt first-time buyers

The chief executive of Ulster Bank, Jim Brown, has warned that the new Central Bank rules on 20% deposits will weigh on the ability of first-time buyers to get on the property ladder.

Speaking before the Oireachtas Finance Committee, Mr Brown said “a rebound in property prices following a crisis is not unusual and we recognise the need for the Central Bank to take steps to avoid overheating both the credit and property markets.

“However, the proposals as they stand, will impact the ability of many first-time buyers to acquire their home, in addition to this, other hopeful first-time buyers will struggle to save a higher deposit while paying increasing rents,” he said.

“We estimate that 68% of the first-time buyer mortgages approved by Ulster Bank this year would have fallen outside the proposed loan to value and or loan to income criteria.

“An efficient economy and marketplace in a country like Ireland is dependent on a fully functioning mortgage market and we welcome the opportunity to contribute to the consultation on how best to achieve this,” he added.

At the beginning of October, the Central Bank announced new rules on mortgage lending to ensure there is no repeat of the property bubble in the future.

The majority of mortgage lending in the future will have to adhere to an 80% loan-to-value rule and loan to income of 3.5 times.

Ulster Bank was fined a record €3.5m on Wednesday for an IT malfunction in June and July 2012 that caused massive disruption to its services.

Mr Brown said these problems had now been resolved following a massive £750m upgrade by its parent company, Royal Bank of Scotland.

Moreover, Ulster Bank’s IT systems can now function independently of RBS, he added.

So far a total of €59m had been paid in compensation to customers in the South and a total of £100m had been paid to customers across the island.

Fianna Fáil TD, Michael McGrath, queried why there was such a disparity between what Ulster Bank charges for its standard variable rate mortgage in the Republic of Ireland and Northern Ireland. It is 4% in the North compared with 4.5% in the South.

Mr Brown said the difference reflected the higher operating costs, funding costs, mortgage arrears and cost of credit in the South. There are no plans to cut the standard variable rate, although the situation is under constant review, he added.

The bank’s net interest margin is 2.32% and the aim would be to increase this to 2.5% or more.

Legal proceeds have been taken against 4,690 mortgage customers in arrears.

The chief risk officer, Stephen Bell, said that the aim was to keep as many people in their homes as possible.However, the threat of legal action was necessary in some cases just to get the customer to engage. There would be roughly 1,500-2,000 repossessions “through the cycle,” said Mr Bell.

Following an IT glitch last year, Ulster Bank did not deduct the DIRT tax owed on 7,000 savings accounts. The bank subsequently clawed back these charges.

Mr Brown rejected the claim by Sinn Fein TD, Pearse Doherty, that because it was the bank’s mistake, it “should have taken the hit” on these charges. “The money was owed to the bank,” said Mr Brown.