Short-term mortgage debt relief comes at a high price
Nearly 3,000 Bank of Ireland mortgage customers will end up paying thousands more in interest on their home loans on foot of agreements they have reached with the bank to deal with their arrears.
Information contained in the latest annual accounts for Bank of Ireland Mortgage Bank shows that at the end of 2015, a total of 2,844 mortgage accounts with a combined value of €400m had their arrears capitalised, ie added to the outstanding loan principal.
While these agreements provide borrowers experiencing difficulty meeting their mortgage repayments with immediate relief and allow them in many cases to stay in their homes, the practice was last night criticised by Fianna Fail's finance spokesman Michael McGrath.
Speaking to the Sunday Independent, he said: "The reality of arrears capitalisation is the borrower ends up repaying a lot more money. They're paying the bank interest above and beyond what it would have been originally for the mortgage when it was drawn down."
Mr McGrath added: "It seems to be a very common restructuring option, but in very many cases, it's really only kicking the can down the road. It doesn't mean the mortgage has been put on a sustainable footing. For some borrowers, it's the correct solution, but for others, the problem is just deferred. We're still not seeing enough split mortgages or interest rate reductions or capital write-offs."
In its accounts, the Bank of Ireland defines forbearance as occurring where "a borrower is granted a temporary or permanent agreed change to the contractual terms of their mortgage for reasons relating to the actual or apparent financial stress of that borrower". The use of arrears capitalisation is just one of a range of forbearance measures used by the country's banks to deal with customers experiencing difficulty in meeting their mortgage repayments.
A further examination of the Bank of Ireland Mortgage Bank's 2015 annual accounts shows that a total of 17,340 mortgage accounts with a combined value of €2.4bn were classed as being in some sort of forbearance at the end of 2015.
The figures represent a significant increase from 2014 when 15,783 mortgage accounts with a combined value of €2.1bn were recorded by the bank as being in forbearance.
Of the 17,340 mortgage accounts in forbearance in 2015, the vast majority - 13,406 - were held by owner-occupiers. The remaining 3,934 mortgage accounts in forbearance were held by buy-to-let investors.
Those figures represent an increase in the numbers in forbearance in 2014 when 12,512 owner occupier mortgages and 3,271 buy-to-let mortgages had some measure applied to assist distressed borrowers.
Commenting on this, the Bank of Ireland Mortgage Bank states that: "The overall increase reflects the bank's progress in implementing restructure and resolution strategies".
Apart from the capitalisation of arrears, the Bank of Ireland may allow distressed mortgage customers to repay the full interest owed on their home loans for a temporary or longer period with no reduction in the principal owed.
In other cases, it may allow stressed borrowers to make reduced payments for a period of time with the principal balance unchanged and extensions to the term of the mortgage with the mortgage payments recalculated to clear the outstanding debt over the new term.