| 13.4°C Dublin

The deserving 'small guy' needs to be protected


Duncan Bannatyne. Photo: Edmond Terakopian

Duncan Bannatyne. Photo: Edmond Terakopian

Duncan Bannatyne arriving at the annual Variety children's charity dinner last September.

Duncan Bannatyne arriving at the annual Variety children's charity dinner last September.


Duncan Bannatyne. Photo: Edmond Terakopian

Businessman and star of BBC's Dragons' Den television show Duncan Bannatyne has made a final offer to buy back his IBRC loans from the former bank's special liquidator.

Reports say that last week he offered to pay £111.5m for his £115m of outstanding loans. If Bannatyne has that kind of cash, he will save £3.5m on the principal plus the interest payments he would have made.

If he is borrowing the money for the buyback, as is more typical for sums that size, he will save £3.5m. That is the reality of the market place when trying to sell assets in a bank liquidation.

However, this course of action is not open to the 13,000 or so customers of IBRC who took out residential mortgages with Irish Nationwide Building Society (INBS).

They are not allowed to buy out their mortgage loans. Their loans look are set to be sold to international vulture funds, which could see them lose the protection of the consumer code on bank arrears, which applies to regulated banking entities.

If Bannatyne didn't buy his loans, they would go to Nama, a State agency which is rather benign to borrowers who stay on top of repayments and are open and responsive.

It is quite a contrast. Especially when you think that the £3.5m discount which may be enjoyed by a businessman like Bannatyne, would cover the cost of a 50 per cent write-down on 70 INBS mortgages, where the average outstanding amount is believed to be around €122,000.

This is not Bannatyne's or the liquidator's fault. They are applying the rules of a normal commercial marketplace.

If the INBS mortgage holders cannot buy back their loans at a discount, then presumably they should be able to do restructuring deals similar to customers of other lenders.

So what are the mortgage arrears resolution targets for INBS customers? There aren't any. How many sustainable restructuring deals have been done and on what terms? We don't know because the Government won't tell us.

This is despite the fact that the former society will cost taxpayers around €5.4bn.

Fianna Fail announced details of a bill last week aimed at ensuring that IBRC mortgage customers enjoy full bank code protections irrespective of who ends up buying the loans.

Finance Minister Michael Noonan has said in the past that he didn't want to disclose details of the extent of mortgage restructurings because the mortgage book was an asset for sale and such information would be commercially sensitive.

He said any new buyer would be obliged to stick to the existing terms and conditions of the customer mortgage contract.

Business Newsletter

Read the leading stories from the world of business.

This field is required

On the issue of the code, he suggested in the Dail that any new owner of the loans could not repossess a house without court approval.

A judge would not grant the repossession if the code had not been adhered to fully. Therefore in his mind, this is not a problem.

The reality is a little more complex. Banking contracts have lots of small print clauses which provide lots of scope for changes to interest rates etc.

International purchasers of mortgage books are much more likely to enforce all of their rights to the full than banks with a longer-term stake in this market and this society.

There is another problem with the sale. Lack of transparency around the status of the book has made it much easier for the previous owners of the mortgage book and the future owners to take a different approach to loan deals for customers.

Where the taxpayer is picking up the tab, the fairest way to tidy up the mess is to have maximum consistency across all lenders about what they are doing. The current plan will allow for greater difference.

There is no easy solution here. Noonan wants to get the maximum return for all of the taxpayers. Doing anything to protect those mortgage customers further, will probably reduce the value of the loan book. That becomes a financial transfer from the many to the few (from all citizens to the 13,000).

But that is actually how society works. These transfers are made all of the time, to help those less well off, those who can't find work or those unable to work.

So, any assistance given to those mortgage holders must be structured in a way that ensures the ones in trouble are the ones who benefit.

It would be completely wrong to suggest that every INBS mortgage holder is some kind of victim. Around 50 per cent of the mortgages are in trouble.

Of the €1.8bn outstanding, around €400m is for buy-to-let properties. This is a no-brainer. Buy-to-let investments do not involve repossession or loss of home, and everything should be done to safeguard the maximum return to the exchequer in relation to them.

Some mortgage customers got enormous loans on trophy houses they simply cannot afford. Those mortgages are completely untenable. Reality will come knocking for borrowers in that situation regardless of who owns the loans.

Irish Nationwide lent out just €700m in mortgages in 2006 at the height of the boom. Almost one-third of it came from head office in Dublin. This was because of commercial lending relationships it had built up with many of these customers who borrowed €2.6bn from the society that year.

Many of these were mortgages given for trophy homes to property investors who are now broke. Nearly seven years after the crash, how many of them are in still in homes they can never hope to afford? Quite a few I suspect.

In fact 15 per cent of the total lent for mortgages in 2006 (€111.1m) went to just 39 key customers who borrowed an average of €2.8m each for their homes.

Irish Nationwide was built on helping the small guy get a foot on the property ladder. By 2000 it was shafting the small guy with savage mortgage arrears policies. By 2006 it was abandoning the small guy for reckless developer lending which has ultimately cost every small guy in the country a lot of money.

Protections should be in place for those who need them and deserve them. The small guy should get some protection as the remnants of INBS finally disappear.

Most Watched