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Thursday 21 September 2017

Now we're paying off mortgages into our 70s

Desperate borrowers agree to extend terms of loans

Donal O'Donovan

Donal O'Donovan

STRUGGLING borrowers are agreeing to extend the length of their mortgages in order to hold on to their homes – even if that means making repayments into their 70s.

New research from the Department of Finance shows that one in three borrowers who have agreed a long-term mortgage-restructuring deal with their bank opted to pay back the full amount over a longer period.

These loan-extension deals have emerged as the most common way to permanently restructure home loans in trouble, the research shows.

While the Central Bank tends to put an upper age limit of 70 – still a number of years past retirement age – on loan extensions, there is scope for that cap to be raised.

The Central Bank says the deals are in line with its guidelines.

"For a term extension, the borrower's age has been taken into account. An overall ceiling of 70 years of age will apply for the Central Bank to consider a term extension sustainable unless there is firm evidence that an older age limit can apply," according to the bank's official guidelines.

The new data also shows that 75pc of loans in long-term arrears have not been restructured.

And for the first time it has revealed that at least half of all borrowers who have signed up to permanent mortgage restructurings were never behind on their repayments.

It is the first insight into the scale of mortgage distress among people who have never been behind in their repayments and so were never factored into official statistics about the mortgage crisis.

It's the strongest evidence yet that in many cases people who know they are in danger of falling behind on their loans are seeking and getting a deal from the bank.

More than 40,000 borrowers have actually agreed permanent mortgage restructuring deals with their bank – double the number in arrears that have done a deal.

Extending the life of the loan means a borrower's monthly repayment is lower, but it can mean paying more to the bank overall, because interest is charged over a longer period.

More than 14,200 loan-extension deals had been done by the end of August, compared to just 2,311 borrowers who opted for a so-called 'split mortgage', even though the latter is the Central Bank's preferred option.

In a split mortgage, a share of the loan is 'parked' to be dealt with later, while the rest is paid off as normal.

The next most popular long-term debt solution is a switch to 'interest only', which cuts monthly repayments but means that a large debt is still left to be cleared at the end of the mortgage period.

ARREARS

The new Department of Finance statistics are based on information from the six main mortgage banks – AIB, Bank of Ireland, PTSB, ACC, KBC and Ulster Bank – which between them account for around 90pc of the market.

The statistics show 82,624 mortgages in long-term arrears, where repayments are behind by three months or more. Of these, 20,414 have agreed some form of debt solution.

While the fall-out from the mortgage crisis continues, there are signs that new lending to households is beginning to pick up.

Figures from the banking industry show that 1,673 new mortgages to the value of €281m were approved by lenders in September.

And data from the Central Bank shows that banks lent out more to households in September than they took in through repayments – for only the third month since 2009.

Irish Independent

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