Business Property & Mortgages

Friday 29 August 2014

Property investors given 50pc mortgage write-offs

Relief for speculators but still no help for struggling homeowners

Mark Keenan

Published 17/08/2013 | 05:00

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HUNDREDS of mortgage-holders are being told they need only pay half of their original borrowings as the market for home loans effectively becomes a lottery.

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Some fortunate mortgage-holders are now being offered 50pc writedowns by foreign financial companies which recently bought bad loan books from Irish lenders.

Most of the deals are being offered to investors who owe money for more than one property.

The news that foreign-owned mortgage providers are offering massive write-downs to investors with several houses is sure to infuriate hard-pressed homeowners struggling to repay mortgages to the state-controlled banks here.

While some Irish banks have written down a few mortgages, the reductions are nowhere near as generous as those being offered to investors.

Typically, these investors borrowed to buy apartments, houses and commercial properties and have been in arrears for some time.

Some are now getting attractive deals being offered by overseas investment companies such as Kennedy Wilson and the Australian-based bank Pepper.

In the past two years, these companies have spent hundreds of millions taking over the 'bad' Irish property loan books of lenders such as Bank of Scotland, Halifax, EBS and IBRC. The latter includes loans originally issued by Irish Nationwide.

Kennedy Wilson and Pepper bought the loans for far less than their face

value, which enables them to write down debts but still make money.

In some cases, companies acquired loans for as little as 20c in the euro, so the company could offer 50pc debt forgiveness and still make a big profit.

This means that the ability to secure a writedown is a lottery. Some homeowners can escape their mountains of debt if their mortgage has been sold to one of the smaller foreign operators, while others will struggle for decades to come.

This new breed of lender is proving quicker than the main banks when it comes to getting to grips with borrowers and cutting deals with them.

The downside, however, is that Ireland has now become a split market in terms of how we deal with property loan arrears.

A Dublin-based estate agent who is dealing with overseas companies said: "If you're in arrears, it really is pot luck how you come out of it. It completely depends on who you borrowed from in the first place and who your loan is with now."

The attractive deals being offered will also frustrate those who have strived all along to keep up their full payments.

A leading executive in the financial services sector, who wished to remain unnamed, said that 50pc forgiveness on troubled loans was "the average writedown being offered and not the exception".

DEALS

A 50pc writedown for a stricken property borrower is the equivalent of turning the clock right back to 2007 – before the crash wiped that much off their property's value.

Karl Deeter of Irish Mortgage Brokers said: "It is happening and we'd better believe it. I have come across customers who have been offered even more than 50pc writedowns.

"These companies are simply doing what they do elsewhere. This is how banking should work – the bank which loaned the money in the first place gets creamed.

"The investment companies and banks who took over the loan books got them for buttons on the euro. They can ask for half back and still make a profit. In contrast, the Irish banks cannot."

In some cases, owner-occupiers are also benefiting.

Mr Deeter cited a case in which Pepper offered the resident of a property in Malahide, Dublin – for which €200,000 was outstanding – the opportunity to settle in total for just €90,000. This equates to debt forgiveness of 55pc.

Ross Maguire of New Beginning said he was also aware of such deals. He added: "This is how they do it in the US and elsewhere. Banks realise they have made a mistake, they take the hit and move on. Not so with the Irish banks."

The Irish Independent asked Kennedy Wilson if it was offering 50pc writedowns but the company did not reply in time for going to press.

Irish Independent

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