Thursday 23 March 2017

Hard-hit homeowners may 'park' part of loan

The jobless and other people who have suffered severe cuts in their income could see part of their mortgage loan 'parked' until their earnings pick up again. Photo: Getty Images
The jobless and other people who have suffered severe cuts in their income could see part of their mortgage loan 'parked' until their earnings pick up again. Photo: Getty Images
Charlie Weston

Charlie Weston

UNEMPLOYED mortgage-holders could have their monthly repayments dramatically reduced under a radical plan set to be recommended to Finance Minister Brian Lenihan.

The jobless and other people who have suffered severe cuts in their income could see part of their mortgage loan "parked" until their earnings pick up again.

Struggling households that qualify for the scheme could put off paying up to one-third of their mortgage for five years, the Irish Independent has learned.

This is similar to a plan put in place by the US federal authorities to aid over-indebted households there.

The recommendation from the Government-appointed expert group on mortgage arrears and personal debt would see the State provide a subsidy to mortgage lenders to cover their costs.

But the scheme is set to cost a fraction of the cost of bailing out the banks.

Under the proposal, a heavily indebted family with a €300,000 mortgage would be able to "park" €100,000 of the mortgage for up to five years. No interest would accrue on the €100,000 during this period.

As soon as they get back to work or get their finances sorted out, the €100,000 that had been parked would be added back into their mortgage.

Banks that take part in the scheme would be paid something like 10c a year for every €1 that was "parked" in this way.

It would be a limited scheme with strict criteria set down for those qualifying for it, with only those considered to have a good prospect of getting back on their feet financially approved.

The expert group, which holds its final meeting today, considers this scheme to be what it calls "advanced forbearance" rather than debt forgiveness.

Deals

It is also to recommend to Mr Lenihan that banks extend existing deals for mortgage holders in trouble by allowing them longer on interest-only payments and payment holidays.

The expert group has been told there has been almost a 50pc rise in the number of homeowners who have renegotiated their mortgage repayments in the last year.

Some 45,000 homeowners have gone into their banks and building societies to do a deal on their repayments, up from 30,000 this time last year.

They have sought payments holidays, agreed to pay interest only for a period, or changed the term of the mortgage.

In addition, almost 37,000 are in arrears on their mortgages, with 10,000 of these in arrears for a year or more.

For those considered unlikely to be ever able to afford to repay their mortgage, the expert group will recommend in its final report that they should be encouraged to hand back their keys and seek social housing.

Once the house is sold, for less than was borrowed, the family would still owe the shortfall. The expert group is to recommended that the mortgage-lender enters into a legally binding settlement arrangement with the former homeowner.

Irish Independent

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