Bank to write off debts for landlords willing to sell their properties
Permanent TSB is writing to buy-to-let investors who are in arrears, telling them that if they sell their properties the bank will write off any residual debt.
This represents a major shift in the approach by the bank to mortgage holders who are in arrears.
This could eventually lead to the bank making similar offers to residential mortgage holders who are in debt distress.
Financial experts said other banks are likely to follow Permanent TSB’s lead.
It is the first mainstream bank to offer to write off bad debts on a formal basis.
There has been some writing off of debt by other banks, but only on an ad hoc and secretive basis.
The move is set to be attractive to small investors and so-called accidental landlords, many of whom are struggling to meet repayments.
But the offer only applies to those the bank believes genuinely can’t repay what they owe.
Selling up is often not an option, as the arrears can be so large that there will still be a shortfall on the mortgage debt after the sale. This means the owners are in negative equity, where the property is worth less than the mortgage taken out on it.
However, the push to sell rental properties is likely to see more tenants left with nowhere to live.
Permanent TSB is under pressure from the Central Bank and the European Central Bank to deal with its bad debts, which represent 28pc of its loan book.
The bank, which is 75pc owned by the State, still intends to sell a portfolio of soured debt to reduce non-performing loans.
But PTSB has now come around to the view that it also needs to incentivise buy-to-let investors who are in long-term arrears to sell up.
Difficulties getting courts to grant repossessions are also playing a part in its thinking.
It has decided the option of offering write-offs to buy-to-let investors is cheaper, faster, and has better optics than selling the properties to vulture funds at a haircut price.
When contacted, Permanent TSB said it was writing to certain buy-to-let mortgage holders who have been in arrears for a long time, to explore their willingness to surrender properties for sale by the bank.
“For customers who are offered and who agree to a voluntary surrender in this initiative, the bank has agreed to clear any arrears or shortfalls that remain on the loan after the property has been sold and that it will not seek any further repayment by the borrowers in respect of the relevant mortgage.”
The offer is limited to customers the bank believes have no means of paying their mortgage or the shortfall of debt once the property is sold.
A spokesman for Permanent TSB said the move followed recent comments by chief executive Jeremy Masding, who said the bank would pursue a number of actions to deal with non-performing loans.
“While this current initiative is limited in scope, it is one of a number of initiatives which we are pursuing to reduce the number of non-performing loans at the bank,” the spokesman said.
The bank said the offer is restricted to certain buy-to-let mortgages and is being made following a detailed review of the loan accounts by the bank.
The offer is limited to customers who the bank believes have no means of meeting the repayment terms of the loan or the shortfall debt which will arise upon the sale of the property, the spokesman said.
Told about the Permanent TSB initiative, mortgage broker Karl Deeter said: “This plan is the right kind of trade-off.
“The borrower loses out on the property and the bank takes a hit. This is the way it should have been since the start, it’s just a pity it took a decade to come to this logical commercial conclusion.”
Last month Permanent TSB attempted to shake up the mortgage market by offering new borrowers cash back every time they make a payment.