Your Money: Home truths
A one-year freeze on banks taking repossession orders took effect last week, but there are other ways to hang on to your house if you are in a similar position to Twink, writes John Cradden
NEW rules on mortgage arrears took effect last week that includes a one-year freeze on banks taking legal action to repossess a house. This means that if you fall into arrears, banks cannot start legal proceedings to repossess your home for at least 12 months after you first fall more than three months behind with your repayments.
The Financial Regulator's code of conduct on mortgage arrears applies to consumers only and to the home in which they live.
However, this doesn't mean you can put your head in the sand. One of the key parts of the new code is that if you refuse to engage with your lender at any time during the 12-month moratorium, then they can start taking legal action before those 12 months are up.
"Talking to your bank is the only thing that provides you with protection under the new code of conduct, so even if the bank are about to take your house and you come up with a new payment plan and start to pay, they will have to halt proceedings," says Karl Deeter, operations manager with Irish Mortgage Brokers.
The latest available official statistics on mortgage arrears, released by the Financial Regulator last December, show that as of the end of September 2009, over 26,000 mortgage holders were in arrears -- just over 3pc of all residential mortgage accounts and almost double the figure for June 2008.
The total figure was not far off estimates at the time of around 30,000, but the next set of figures due at the end of March is expected to show another sharp rise in the total.
The Oireachtas Committee on Social and Family Affairs last week published a report which estimates that the figure is now around 35,000.
Estimates by the Irish Independent put the figure at 40,000 mortgage holders.
Of the 26,000 officially in arrears, over 17,000 families have not been able to pay their mortgage in more than six months.
While the 12-month moratorium may come as a relief to some, many in the mortgage industry say it will make little difference as lenders are so reluctant to go down the repossession route anyway, particularly given the widespread negative equity situation, and will seek out any alternative where they can. They point to the relatively small number of people out of the 6,400 who are more than 12 months in arrears who have so far appeared before the High Court or Circuit Court.
Out of 218 enforcement proceedings that took place in the three months between July and September 2009, 79 repossession orders were granted, while the rest were settled or resulted in the properties being voluntarily surrendered or abandoned. Nonetheless, there have been calls to extend the ban on repossessions beyond 12 months while the Government looks for other ways to help those in trouble.
In the meantime, the main advice for those already in arrears is to reduce and clear your debt as quickly as possible, not least because you could end up paying extra charges and penalties.
Some lenders are imposing penalty interest of up to 1pc a month, or 12pc a year, on the monthly repayments that are missed, according to a recent investigation by the Irish Independent. If the lender gets in touch, don't ignore them.
"Despite what some people are saying, the banks in general are willing to meet with people and help them out in any way that they can," says Kevin McNerney, director of the Mortgage Finance Company.
"They will go through your financial situation with you and try and come to a mutual agreement which will be reviewed."
If things do not improve, lenders are obliged to explore other alternatives, such as extending the original term of your mortgage so that you can reduce your monthly repayments, or switching to "interest- only" repayments so that you only repay the interest portion of your loan. Another option is to take a payment break that is offered only by some lenders and usually for no more than six months.
Switching to a fixed rate is another option that might be offered to you, but with fixed rates currently higher than variable ones, this may not make much sense in the short term, particularly if you are on a tracker.
If you have other loans, you may have the option of a remortgage with either your existing lender or an alternative company. With a remortgage, any outstanding loans and the original mortgage are grouped into one new loan, which you pay off at the much lower mortgage interest rate.
However, you could end up paying more because you will be paying the loan over a longer term.
"Renegotiating mortgage terms is not as straightforward as people may think and it would be a good idea to take independent financial advice before entering into any new contract," says Ciaran Phelan, CEO of the Irish Brokers' Association.
"People should be mindful only to restructure loans only if absolutely necessary, as the longer it takes to pay off a loan the more it will cost you in the long run."
Mortgage life protection cover is mandatory, but many of those in arrears as a result of being made redundant may now regret not taking out mortgage repayment protection insurance too.
"Much of this could be solved in the future by enforcing insurance for the inevitabilities," says Mr Deeter. "We have mandatory life cover for mortgages, but the odds of dying are incredibly low. The odds of losing your job or being unable to work are not."