Banks set to take trackers off struggling borrowers
Published 19/06/2013 | 05:00
THE Central Bank is to give banks the power, for the first time, to take tracker mortgages off struggling householders.
However, heavy restrictions are to be placed on the new ability of lenders to strip homeowners of the low-cost mortgage rate.
The decision is expected to affect thousands of borrowers. A majority of the 23,500 mortgages in arrears of two years or more are considered candidates for debt write-downs.
Around half of these distressed mortgages are on tracker rates.
The move to restructure tracker mortgages comes despite hundreds of submissions urging regulators not to change the strict rules on blocking banks from redrawing the low-cost products.
Regulators are concerned that the system of allowing banks to take trackers off homeowners could be abused and they are set to come down heavily on banks they feel are pressurising people to come off a tracker rate.
This means that banks will have to agree to write off some of the homeowners' mortgage debt.
Along with this, the bank will only be able to remove the tracker if the borrower is so far behind on their repayments that the next move by the bank is to repossess the home.
However, it will be the first time banks will get the powers to strip a mortgage holder of a tracker mortgage.
Under the existing Central Bank code of conduct on mortgage arrears, banks are barred from moving a homeowner off their existing tracker to a different mortgage rate as part of any repayment deal.
Interest charged on some trackers is up to five times cheaper than variable rates. More than half of the mortgages in the market are trackers.
Banks have argued that they should be entitled to take away a tracker from anyone who has gone into arrears and has been offered any form of forbearance, such as interest-only.
Lenders argue that getting into arrears is effectively a breach of contract, so the tracker should be given up once the homeowner gets back into work.
Central bankers have yet to finalise the review of the arrears code, but have already told the bailout supervisors in the EU and IMF about the broad thrust of their plans.
The bank launched a submission processes in March, proposing various changes to its code of conduct on mortgage arrears.
It got 230 submissions, most of which were opposed to any move giving powers to banks to alter mortgage deals.
The National Consumer Agency, a state body, said an independent financial assessment should be done of each borrower before a bank can change the mortgage type.
Removing a tracker would help a bank make more money from a mortgage as even though debt would be written off, the homeowner would be on a higher variable rate and end up with a longer term mortgage.
Other changes to the code to be announced next week include removing the restrictions on lenders making just three unsolicited calls a month to those in arrears, and allowing banks to move to repossess homes of people who are regarded as unco-operative.
The EU Commission has welcomed these changes but warned there could still be "undue incentives" for mortgage holders to stop paying even though they can afford to.
"Even after the planned reforms of the legal framework for repossessions and of the code of conduct on mortgage arrears, undue incentives may remain for strategic non-payment/default," the commission said in a new review.