Monday 27 March 2017

Deferred-interest plan for homeloans is 'doomed to fail'

Charlie Weston

Charlie Weston

A SCHEME that aims to help troubled mortgage-holders will not work, as it will just push them deeper into debt, an international ratings agency has said.

Most lenders are to adopt the deferred-interest scheme proposed by the government-appointed mortgage arrears group and endorsed by the Cabinet.

But ratings agency Moody's, which assesses the creditworthiness of banks, insisted that the scheme will not work.

Mortgage brokers have calculated that a borrower who signed up for the scheme and deferred an interest amount of €333 a month could find they owed an additional €20,000 on their mortgage after five years.

The proposal to defer some of the interest on a mortgage for struggling homeowners was the centrepiece of the mortgage arrears group's final report, issued earlier this month.

The expert group said the deferred-interest scheme would only apply to mortgage holders who already have an agreement from their lender to pay the interest only on their loan.

Those who qualify would have to manage to pay at least 66pc of the interest on their mortgage.

Borrowers would be able to defer repayment of the rest of the interest and the capital for up to five years. Interest cannot be charged on the outstanding interest.

Banks representing 70pc of the mortgage market -- AIB, Bank of Ireland, Permanent TSB and EBS -- have signed up to this voluntary interest deferral scheme.

However, KBC Bank and Ulster Bank are among those who have not signed up for the scheme.

Mortgage broker Karl Deeter said he expected the deferred-interest scheme to be a "total failure".

He said it was similar to schemes in the US and the UK, which have had a tiny take-up among distressed borrowers.

Irish Independent

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