Banks told to do fresh mortgage deals with thousands
But regulator wants rental properties sold
THE country's chief regulator last night told banks to make deals with thousands of families struggling to pay the mortgage on their homes.
But Central Bank boss Patrick Honohan also called on the lending institutions to repossess buy-to-let properties where repayments are not being made.
It is the strongest signal yet from the banking regulator to lenders that he wants them to deal with those in trouble on their home mortgages separately from those with toxic property investments that are dragging down thousands of families. Instead of repossessing homes, banks should modify mortgage repayments to help homeowners for a number of years until they get back on their feet, he said.
He told banks to use split mortgages, where part of the debt is deferred for a number of years. This sort of arrangement for family homes would mean that in most cases banks and homeowners could avoid using new debt write-off schemes, which will be introduced in the new personal insolvency legislation.
"Banks should in most cases be able to arrive at arrangements with their debtors that do not require use of the new legislation," Mr Honohan said.
Around 107,000 families are struggling to repay their residential mortgages as they are either in arrears or have had to do a deal with the bank on repayments.
However, Mr Honohan wants owners and banks to bite the bullet on buy-to-let properties where repayments are not being met.
The bank would repossess the property at current market values. That would still leave owners owing the balance. However, it would stop arrears continuing to build up and give borrowers some breathing space.
Mr Honohan is optimistic that clearing the distressed mortgages and getting the properties back on the market would benefit current owners and the economy in the medium term.
There is new legislation due soon that will allow for some mortgage debt to be written off on a case-by-case basis.
But Mr Honohan urged lenders to come to an arrangement with owners of family homes, without resorting to that process.
The ongoing crisis means that banks should take radical action and should not "be inhibited about repossessing buy-to-let properties" where the mortgages are in arrears, Mr Honohan said in a speech at the University of Limerick last night.
"It is surely past time for the banks to be dealing more proactively with the situation of over-indebted buy-to-let borrowers," he said.
This would get the distressed mortgages away from investors, and stop the build-up of arrears on the loan.
However, it would mean the bank taking back the property while the investor would still owe the difference between the current value and the original mortgage.
Because of the slump in property prices, this means that many investors could lose their property and still owe tens of thousands to the bank.
Mr Honohan admitted this process would also mean banks would end up with massive portfolios of repossessed properties. But banks becoming landlords on a grand scale and managing these portfolios was "not an insurmountable task".
"In any event it would facilitate the improved functioning of the property market and get closer to a market-clearing price," he said.
It is estimated that around 100,000 buy-to-lets were bought during the boom.
Many middle-income families overextended themselves to buy investment properties.
Some 25,000 to 30,000 of these properties have arrears built up on the mortgages, experts have estimated.
Mr Honohan's call for mass repossession of these indebted buy-to-lets drew a mixed response last night.
Karl Deeter of Irish Mortgage Brokers said many stretched families had been using the rental income from their investment properties to pay their residential mortgage. This meant they ended up in arrears on their buy-to-let properties.
But there was a risk that residential arrears would worsen if banks started on a course of mass repossessions of investment properties, where the borrowers were in default.