KBC, Ulster Bank say no to deferred interest plan

Charlie Weston Personal Finance Editor

November 19 2010 04:47 AM

A NUMBER of lenders admitted yesterday they will not support a new scheme to help financially distressed mortgage holders. The move undermines a proposed support scheme to defer, or "warehouse", some of the interest on mortgages for those in arrears.

This scheme is a key part of the final report of the government-appointed expert group on mortgage arrears. But yesterday, KBC Bank and Ulster Bank said they would not sign up to the scheme, which is a voluntary measure.

Some 10pc of residential mortgages are either in arrears or the mortgage holders have had to opt to reschedule their repayments. Most distressed homeowners agree to pay only the interest on their mortgages.

The expert group said that a deferred interest scheme should be introduced for borrowers who could pay at least 66pc of the interest on their loan.

Head of the expert group Hugh Cooney said the scheme would defer interest payments of between €700 and €800 over a period of up to five years.

But KBC Bank said it did not see the need for the new forbearance scheme.

Measures

The bank said: "Given that the range of current forbearance measures are working, we will continue to use these, with maybe some modifications to suit particular situations, in preference to any prescribed, rigid, generic solution."

Ulster Bank also said it would not introduce the new measure for its customers who were in arrears. "As the bank is outside the scope of the Irish government guarantee scheme, we will not be participating in the expert group's deferred interest scheme."

And subprime lender Start said it had yet to decide if it would participate in the scheme. Halifax/Bank of Scotland (Ireland), which has closed down but still has mortgages on its books, said it was considering the deferred interest scheme, while National Irish Bank had yet to decide on whether to take part. Irish Nationwide said yesterday it would join the scheme, while AIB, Bank of Ireland, EBS and Permanent TSB have already signed up for the scheme. These lenders represent the lion's share of the mortgage market.

Operations director of Irish Mortgage Brokers Karl Deeter was highly critical of the deferred interest scheme.

"The expert group has spent so much time trying to avoid moral hazard that it avoided the moral responsibility of trying to address the problem it was supposed to."