RBS 2013 Annual Report Download - page 265
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Business review Risk and balance sheet management
263
2013 2012
Bullet principal Conversion Proportion of Bullet principal Conversion Proportion of
repayment to amortising Total mortgage lending repayment to amortising Total mortgage lending
£bn £bn £bn % £bn £bn £bn %
UK Retail (1) 25.4 — 25.4 25.6 28.1 — 28.1 28.4
Ulster Bank 0.7 1.4 2.1 11.0 1.4 1.8 3.2 16.7
RBS Citizens 0.4 8.9 9.3 47.5 0.5 9.0 9.5 44.1
Wealth 6.0 — 6.0 69.0 5.7 0.1 5.8 66.0
Total 32.5 10.3 42.8 35.7 10.9 46.6
Note:
(1) UK Retail also has exposure of £7.7 billion to customers who have a combination of repayment types, capital repayments and interest only.
UK Retail
UK Retail’s interest only mortgages require full principal repayment
(bullet) at the time of maturity. Typically such loans have remaining terms
of between 15 and 20 years. Customers are reminded of the need to
have an adequate repayment vehicle in place during the mortgage term.
Of the bullet loans that matured in the six months to 30 June 2013, 53%
had been fully repaid by 31 December 2013. The unpaid balance totalled
£51 million, 96% of which continued to meet agreed payment
arrangements (including balances that have been restructured on a
capital and interest basis within eight months of the contract date;
customers are allowed eight months leeway for their investment plan to
mature and cashed in to repay the mortgage). Of the £51 million unpaid
balance, 56% of the loans had an indexed LTV of 70% or less with only
14% above 90%. Customers may be offered a short extension to the term
of an interest only mortgage or a conversion of an interest only mortgage
to one featuring repayment of both capital and interest, subject to
affordability and characteristics such as the customer’s income and
ultimate repayment vehicle. The majority of term extensions in UK Retail
are classified as forbearance.
Ulster Bank
Ulster Bank’s interest only mortgages require full principal repayment
(bullet) at the time of maturity; or payment of both capital and interest
from the end of the interest only period, typically seven years, so that
customers meet their contractual repayment obligations. For bullet
customers, contact strategies are in place to remind them of the need to
repay principal at the end of the mortgage term.
Of the bullet mortgages that matured in the six months to 30 June 2013
(£1.2 million), 20% had fully repaid by 31 December 2013 leaving
residual balances of £0.9 million, 78% of which were meeting the terms of
a revised repayment schedule. Of the amortising loans that matured in
the six months to 30 June 2013 (£65 million), 69% were either fully repaid
or meeting the terms of a revised repayment schedule.
*unaudited
Ulster Bank also offers temporary interest only periods to customers as
part of its forbearance programme. An interest only period of up to two
years is permitted after which the customer enters an amortising
repayment period following further assessment of the customer’s
circumstances. The affordability assessment conducted at the end of the
forbearance period takes into consideration the repayment of the arrears
that have accumulated based on original terms during the forbearance
period. The customer’s delinquency status does not deteriorate further
while forbearance repayments are maintained. Term extensions in
respect of existing interest only mortgages are offered only under a
forbearance arrangement.
RBS Citizens
RBS Citizens has a book of interest only bullet repayment HELOC loans
(£0.4 billion at 31 December 2013) for which repayment of principal is
due at maturity, and an interest only portfolio that comprises loans that
convert to amortising after an interest only period that is typically 10 years
(£8.9 billion at December 2013 of which £8.0 billion are HELOCs). The
majority of the bullet loans are due to mature between 2014 and 2015. Of
the bullet loans that matured in the six months to 30 June 2013, 50% had
fully repaid or are current as of 31 December 2013. The residual
balances (modified, delinquent, and charged-off) made up £21 million.
For those loans that convert to amortising, the typical uplift in payments is
currently 210% (average uplift calculated at £132 per month).
Delinquency rates have shown a modest increase in the over 30 days
arrears rate.