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Saturday 23 August 2014

Banks could write off each other’s debts in new plan

Charlie Weston Personal Finance Editor

Published 30/04/2014 | 02:30

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Housing charity Focus Ireland, said that it has recorded a 25pc hike in the number of people seeking their help over the past 12 months

THE main banks are in talks on an initiative to restructure unsecured debts that their customers owe to other banks.

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This could see Bank of Ireland arranging for its mortgage customer to have a car loan owed to Permanent TSB written off, the banks said.

AIB, Bank of Ireland, Permanent TSB, Ulster Bank and KBC Bank are involved in the talks, the Irish Independent has learned.

Thousands of over-stretched borrowers could benefit from the move. Close to 100,000 residential mortgage accounts are in arrears, with most of these homeowners also under pressure to pay other loans.

The scheme aims to give priority to meeting mortgage |repayments for struggling consumers. A variety of options will then be looked at if there are limited funds left over to pay unsecured debts – such as credit union loans, personal loans, credit card and catalogue debt.

A similar initiative had been agreed last year, but was parked while talks were hosted by the Central Bank between the banks and credit unions in an attempt to get all leaders to agree on how to deal with households with multiple debts. But these talks collapsed when credit union groups pulled out.

Felix O’Regan, director of public affairs at the Irish Banking Federation, confirmed that the main banks were attempting to revive the scheme to restructure unsecured debts among themselves.

Repayments

Households owe €15bn in non-mortgage debts, with around €10bn of that owed to banks, and another €5bn owed to credit unions. Mortgage debts total around €120bn.

One senior banker said the average homeowner on a tracker had repayments of around €1,000 a month, on an outstanding mortgage of €170,000.

But there is another €500 to €600 being paid out every month on unsecured debts.

The scheme would see the mortgage debt prioritised and paid ahead of other borrowings. Then options for the unsecured debts would be looked at if there was money left over each month.

Options include a ‘holiday’ on the repayments for the unsecured debts, lowering the interest rates on the debts, repaying the loan over a longer period, and even writing off some of the debts.

However, bankers insisted that mortgage debt was unlikely to be written off, and unsecured debt would only be written down in extreme circumstances.

The new deal could mean that a person with a mortgage with Ulster Bank, but a credit card balance with AIB, would be encouraged by Ulster Bank to make the full mortgage repayments. Ulster Bank would then contact AIB, with the customer’s permission, proposing a restructuring of the credit card debt.

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