AIB offers new debt write-off deal for families in arrears
Published 05/02/2014 | 02:30
THE State's biggest bank is to introduce a radical new incentive scheme for families in mortgage arrears.
The offer from AIB will see set portions of mortgage debt written off if families keep to the terms of the deal.
The new offer is an advanced form of split mortgage. This is where part of the money owed is 'parked' and payments are made on an amount the customer can afford.
AIB, and its subsidiary EBS, already have a split mortgage deal. But the new offer will see parts of the 'parked' portion of the mortgage written off if customers in arrears keep to the terms of the deal.
A family in negative equity that owes €300,000 could get up to €40,000 written off. If the family meets the revised payments, they can get another 5pc of the mortgage written off after five years. There will then be another 5pc write-off, if the repayments are up to date.
And extra amounts of the warehoused part of the mortgage can be written off if the customer comes into an inheritance and can make a lump-sum payment.
The new plan is seen as a way to encourage people to maintain their payments, and not slip back into arrears.
Large numbers of people offered mortgage solutions by banks end up back in arrears.
The move has the backing of the Central Bank and is the first time a mainstream lender in this country has offered a structured debt-write off deal for families in financial trouble.
The bank will select families they feel are suitable for the new product and are engaging with the bank. But it is expected that many of those who currently have a split mortgage from the bank may get the new product to replace the old one.
However, families will not be able to apply for the new debt write-off offer. It is understood the bank will choose those it thinks are suitable for it.
It will be for those borrowers who have tried interest-only and term extensions and found that they did not work.
One source said: "This split represents a final attempt to keep people in their homes where there is some level of affordability.
"It is entirely based on an assessment of affordability after the calculation of net disposable income after reasonable living expenses.
"It is only for co-operating customers and those who provide full disclosure."
One subprime lender in this market, Australian group Pepper which took over GE mortgages here, already offers a similar scheme.
It offers a 5pc write-off on the part of the mortgage that has been warehoused if homeowners keep paying the part that they are able to afford.
One in five mortgages are in arrears, with a majority of those behind on their payments in a job.
News of the new product comes days after the Irish Mortgage Holders Organisation (IMHO) said 22 AIB customers have had a portion of their mortgage debt written off by the bank as part of settlements reached in the past three months.
Charlie Weston Personal Finance Editor