Banks offer debts waiver if mortgage holders keep up payments
HOMEOWNERS drowning in debt have been thrown a lifeline after banks set up a scheme to write off huge chunks of credit card and car loan debt, in return for promising to meet as much as they can of their mortgage repayments.
One bank said it was prepared to write off up to 80pc of the 'unsecured debt' it had advanced to borrowers who are now in distress.
The arrangement – which will be in place from today for customers of banks that have signed up to the deal – is at the discretion of the lenders. However, sources indicated that customers who have dealt honesty with lenders are likely to be considered for the deal.
Unsecured debts typically include bills run up on catalogues, credit union loans, store card debt and hire purchase agreements.
The new deal will involve the bank contacting all other lenders that are owed loans by the homeowner, and trying to get these unsecured debts reduced.
But the homeowners will have to agree to pay their mortgage repayments ahead of all other debts.
They will have to meet the full mortgage repayments, if they can. But the deal also allows for mortgage repayments to be reduced for up to five years.
Any money left over will be divided up evenly and paid out to the lenders that provided the car loan or other unsecured loans.
A detailed form, called a standard financial statement, will have to be filled by the customer, setting out all outgoings, assets and bills.
The Irish Banking Federation has agreed the new measure. AIB, Bank of Ireland, Ulster Bank, KBC Bank and Permanent TSB are understood to have backed the new policy.
Credit unions and store card issuers are not part of the agreement, so it remains to be seen if they will consent to having their loans written off so banks can get their mortgages repaid.
There are 136,000 homeowners in arrears on their mortgages, while another 44,000 are not in arrears but have agreed to make reduced payments.
Most of them have a large amount of other debts, with some owing thousands of euro on multiple credit cards.
The banking body said: "This new initiative will involve lenders and customers working together both to prioritise the home-loan payment, and to restructure the customers' remaining debts on an appropriate basis."
The aim of the new deal was to encourage financially distressed people to work with their mortgage lender, with the aim of keeping families in their homes.
The deal will be in place for three years and then reviewed.
If the homeowner sticks to the agreement for five years, they will have up to 80pc of their unsecured debts written off.
This is similar to the new personal insolvency regime that is due to be implemented in months.
The new insolvency regime will replace the current inflexible bankruptcy system with court-backed deals between strapped borrowers and banks, with some debt written off if an agreed payment schedule is observed over a five-year period.
Banks have advised customers to talk to their mortgage lenders and to provide the necessary information to enable their financial position to be assessed.