Debt lifeline for thousands in bank repossession ban
Published 06/02/2010 | 05:00
STRUGGLING mortgage holders were thrown a lifeline last night when banks, building societies and subprime lenders were ordered to wait a year before moving to repossess a home.
The move will come as a blow to subprime lenders like Start, which features in many of the repossession cases before the courts.
More than 6,400 homeowners are threatened with eviction as they have failed to pay their mortgages for a year or more.
They are thought to be among the 8,000 homeowners who have been issued with a formal demand to return their property to their lender.
A total of 26,000 people have not paid their mortgage in three months or more, recent figures from the Financial Regulator have shown.
Now the regulator has ordered all lenders to hold off for a year before making legal moves to repossess a house, as long as the borrower is engaging with the bank or building society.
Up to now, lenders, including subprime operators like Start Mortgages, had to wait for six months after the borrower got into arrears before taking legal action to repossess the home.
As part of the state bailout of the banks, which pumped €3.5bn each into AIB and Bank of Ireland, bank chiefs were told last February to wait a year before moving on homeowners who were in arrears.
That moratorium was due to end at the end of this month.
However, last night the regulator said that all lenders would have to wait a year before starting legal moves to repossess a home as part of an amendment to the statutory Code of Conduct on Mortgage Arrears.
The code only applies to people's principal private residence.
The move will come as a blow to subprime lenders like Start Mortgages. Even though subprime lenders account for just 2pc of the mortgages issued, they are responsible for 40pc of the repossession cases going through the courts, the Irish Banking Federation has pointed out.
Under the code, lenders have to write to homeowners as soon as there are arrears. A plan to clear the arrears has to be agreed with the borrower.
However, if a homeowner fails to engage with their lender, then the bank, building society or subprime lender is free to issue legal action to repossess the home.
The regulator said in a statement last night: "The Financial Regulator is of the view that lenders should only seek repossession in less than 12 months in very exceptional circumstances and when all reasonable attempts to encourage engagement by the borrower have failed."
It emerged earlier this week that thousands of mortgages have already been restructured by hard-up homeowners who are struggling to meet their repayments.
This restructuring includes borrowers being granted 'repayment holidays' by their lenders. This is where the homeowner does not pay anything for a certain amount of time.
Another option being allowed by banks is the rolling-up of interest. This is where there is no interest initially, but it is added to the loan amount.
Some borrowers are even opting to extend the term of their loan.