Brendan Burgess
Founder
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PTSB has a core loan book of €26.6 billion which it has to reduce to €21.3 billion by the December 2013. Natural repayment of loans would reduce this anyway. But I suggest that if it speeds up the reduction in its core loan book, it may achieve its target much earlier and it will be under less pressure to sell off its UK loan books at fire sale prices. This may stave off state ownership which would be good for everyone – the tax payers, the staff, the borrowers and the depositors.
While this is targeted at PTSB in particular, it could also be adapted by all the other lenders
1 Improve the discount for the early repayment of trackers
It’s odd that this has been limited to €500 million of loans. This is only around 10% of what needs to be achieved. It’s a small step in the right direction, but they need to be far more selective. Smaller discounts for people with more expensive trackers and bigger discounts for those with the cheapest trackers.
I believe that a lot of those people with cheap trackers have big savings available. We tend to focus on the 10% who are behind in their repayments and all the people in negative equity, but people with cheap trackers have had low rates for years now and many have that money on deposit elsewhere.
2 Give a commitment to backdate any future improved offer
A lot of people will hold off participating in this because they think that the terms might be improved. If PTSB gives a commitment to backdate any improved offer, then there would be no reason for people to hold off. In fact, they would be crazy not to take up the offer. If the offer lapses, they will lose it. If the offer is improved they will benefit from the improvement.
3 Give a discount to reduce negative equity for those who are not in arrears who have SVR mortgages
People on Standard Variable Rate mortgages which are in deep negative equity should be given a discount to reduce the negative equity. It is reported that the Central Bank stress tests required the banks to provide against loans in negative equity. By encouraging people to reduce the balance on negative equity mortgages they are improving the quality of the loan book and deleveraging at the same time.
4 Give those with SVR’s who pay off a lump sum a rate guarantee
The big worry for those on SVRs is that the margin may be increased further. Offer an incentive - for example, if they pay off 20% of their mortgage, they will be put on a tracker rate of ECB + 4%.
5 Facilitate the sale of properties in negative equity although not in arrears
Many people in negative equity would like to sell their homes but feel that they can’t because of the negative equity. The bank should make it known that it welcomes proposals from those people who want to sell up. There will be a shortfall, but a discount can be given on the shortfall.
6 Facilitate the sale of properties in serious arrears.
PTSB should develop a programme aimed at people in serious arrears who wish to sell their homes. If they have a combination of cheap tracker, negative equity and serious arrears,the bank could offer a combination discount to the borrower to sell the home. After discounts and the sales proceeds, there may still be a shortfall. This could be covered by a new personal loan on the same terms or a payment of cash from a relative.
Because the Central Bank has forced PTSB to make very heavy provisions against such loans, in many cases the sales proceeds will exceed the written down value of the mortgage in PTSB's books. This would allow the unused provision to be written back.
7 Target the buy to lets for particular attention
PTSB has had to make big provisions against the buy to let book. Buy to lets require higher capital anyway. All of the above mechanisms should be made especially attractive to the owners of buy to let properties. In addition, where the owner still has equity in their own home, the shortfall on sale of the buy to let could be transferred to it.
In some cases it might be possible for PTSB to provide new mortgages to tenants who wish to buy the homes they are renting from the landlords. PTSB could change a buy to let tracker in negative equity into a home loan on a SVR with positive equity.
8 Encourage mortgage holders who don’t want to pay off their mortgage to move their deposits to PTSB
Many borrowers who have cash want to hold onto it in case they need it in future. They should be encouraged to move their money to PTSB by the following
· Open an offset deposit account. Interest would be charged on the net balance of the mortgage less the deposit. .
· The borrower would be able to withdraw the cash when they needed it in future.
· In the event of PTSB going bust, the person’s mortgage would be reduced by the amount still in the deposit account.
Conclusion
PTSB is in deep trouble but the Central Bank’s draconian action is making the situation worse not better. PTSB could stay independent given more creative deleveraging combined with more time.
While this is targeted at PTSB in particular, it could also be adapted by all the other lenders
1 Improve the discount for the early repayment of trackers
It’s odd that this has been limited to €500 million of loans. This is only around 10% of what needs to be achieved. It’s a small step in the right direction, but they need to be far more selective. Smaller discounts for people with more expensive trackers and bigger discounts for those with the cheapest trackers.
I believe that a lot of those people with cheap trackers have big savings available. We tend to focus on the 10% who are behind in their repayments and all the people in negative equity, but people with cheap trackers have had low rates for years now and many have that money on deposit elsewhere.
2 Give a commitment to backdate any future improved offer
A lot of people will hold off participating in this because they think that the terms might be improved. If PTSB gives a commitment to backdate any improved offer, then there would be no reason for people to hold off. In fact, they would be crazy not to take up the offer. If the offer lapses, they will lose it. If the offer is improved they will benefit from the improvement.
3 Give a discount to reduce negative equity for those who are not in arrears who have SVR mortgages
People on Standard Variable Rate mortgages which are in deep negative equity should be given a discount to reduce the negative equity. It is reported that the Central Bank stress tests required the banks to provide against loans in negative equity. By encouraging people to reduce the balance on negative equity mortgages they are improving the quality of the loan book and deleveraging at the same time.
4 Give those with SVR’s who pay off a lump sum a rate guarantee
The big worry for those on SVRs is that the margin may be increased further. Offer an incentive - for example, if they pay off 20% of their mortgage, they will be put on a tracker rate of ECB + 4%.
5 Facilitate the sale of properties in negative equity although not in arrears
Many people in negative equity would like to sell their homes but feel that they can’t because of the negative equity. The bank should make it known that it welcomes proposals from those people who want to sell up. There will be a shortfall, but a discount can be given on the shortfall.
6 Facilitate the sale of properties in serious arrears.
PTSB should develop a programme aimed at people in serious arrears who wish to sell their homes. If they have a combination of cheap tracker, negative equity and serious arrears,the bank could offer a combination discount to the borrower to sell the home. After discounts and the sales proceeds, there may still be a shortfall. This could be covered by a new personal loan on the same terms or a payment of cash from a relative.
Because the Central Bank has forced PTSB to make very heavy provisions against such loans, in many cases the sales proceeds will exceed the written down value of the mortgage in PTSB's books. This would allow the unused provision to be written back.
7 Target the buy to lets for particular attention
PTSB has had to make big provisions against the buy to let book. Buy to lets require higher capital anyway. All of the above mechanisms should be made especially attractive to the owners of buy to let properties. In addition, where the owner still has equity in their own home, the shortfall on sale of the buy to let could be transferred to it.
In some cases it might be possible for PTSB to provide new mortgages to tenants who wish to buy the homes they are renting from the landlords. PTSB could change a buy to let tracker in negative equity into a home loan on a SVR with positive equity.
8 Encourage mortgage holders who don’t want to pay off their mortgage to move their deposits to PTSB
Many borrowers who have cash want to hold onto it in case they need it in future. They should be encouraged to move their money to PTSB by the following
· Open an offset deposit account. Interest would be charged on the net balance of the mortgage less the deposit. .
· The borrower would be able to withdraw the cash when they needed it in future.
· In the event of PTSB going bust, the person’s mortgage would be reduced by the amount still in the deposit account.
Conclusion
PTSB is in deep trouble but the Central Bank’s draconian action is making the situation worse not better. PTSB could stay independent given more creative deleveraging combined with more time.