Thursday 21 September 2017

More vulture funds likely to offer write-offs to families

Finance Minister Michael Noonan Picture: PA
Finance Minister Michael Noonan Picture: PA

Donal O'Donovan and Charlie Weston

More so-called vulture funds will offer mortgages back to borrowers at a discount as they look to exit the market, a leading analysts believes.

The Irish Independent reported yesterday that Tanager, a fund controlled by US private equity giant Apollo, is offering to write off 40pc of the mortgage debt of customers who can pay off the remaining balance.

Finance Minister Michael Noonan welcomed the news, saying that funds that bought loans at less than the face value can give better deals than the original lenders.

"If a property company buys debt, let's say from AIB at a big discount, if they bought it at 70 cents in the euro - they have a 30pc headroom then to cut a deal, and that's what's happening now.

"We have been encouraging them from the Department of Finance to do that, and I'm pleased that the discount that's announced this morning is very big - it's 40pc."

However, he said new mortgages are likely to come with higher interest rates, and people should seek advice and "do the full sums" before accepting deals from lenders.

In practice most borrowers will have to get a new mortgage to pay back the fund.

Owen Callan, an analyst at specialist bank Investec, said he thinks more funds will follow suit - lifting some home owners out of negative equity.

"(It is) definitely something we are likely to see more of from the distressed debt funds who own Irish mortgages, and could lead to fresh refinancing flows back into the Irish banks and an increase in home sale activity from previously 'trapped' homeowners vis-a-vis not wanting to lose their tracker or stuck in negative equity," he said.

Read More: Vulture funds offer to slash your mortgage by 40pc

The main banks are far less likely to make offers to customers, although some foreign-owned lenders such as Ulster Bank and KBC could consider it in order to cut the number of tracker loans on their books, he said.

Borrowers

Yesterday the Irish Independent broke the news that Apollo's Tanager unit had made the buy-back offer to thousands of Irish mortgage borrowers who have tracker loans. It originally bought from the Bank of Scotland (Ireland) when the bank exited the Irish market.

At least 45,600 residential and buy-to-let mortgages are owned by unregulated vulture funds.

The Tanager offer would mean someone with a €300,000 mortgage would get a discount of €120,000 if they can get the debt refinanced elsewhere, but they will lose their low interest tracker rate.

Most of the Tanager trackers are understood to have an interest rate of around of 0.5pc, far below any interest rate available to borrowers today.

Irish Independent

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