Tuesday 20 February 2018

BoI bows to pressure and lowers rate on split mortgages

Picture posed. Thinkstock
Picture posed. Thinkstock

BANK of Ireland has bowed to pressure and will reduce what it charges distressed mortgage holders on one of its key long-term solutions for those in arrears.

The bank is lowering the interest it imposes when it gives troubled homeowners a split mortgage. The move comes after TDs and senators accused the bank of profiting from those in mortgage arrears.

Now the bank's boss, Richie Boucher, has written to the Oireachtas Finance Committee and said he is altering the terms of its split mortgages for those on variable rates, the Irish Independent has learnt.

A split mortgage is a form of restructuring that results in a portion of a mortgage being warehoused for repayment at a later date, while the balance continues to be paid off.

AIB and Permanent TSB do not charge interest or require capital payments on the part of the mortgage that is set to one side. But Bank of Ireland has been criticised for charging full interest on the warehoused portion of the mortgage, although it usually does not require the capital to be paid back until a later date.

Independent TD Stephen Donnelly told Mr Boucher at the committee hearings last month that almost all of the bank's restructuring deals resulted in mortgage holders paying back a higher amount.

Mr Boucher has written to committee chairman Ciaran Lynch saying he has reviewed and changed the split mortgage product. The bank boss said he had listened to the politicians and their concerns.

He said the vast majority of owner-occupied customers in arrears were on trackers and that the tracker terms and conditions would be adhered to for co-operating customers getting a split mortgage.


But he defended only partially meeting the politicians' concerns. They want the bank to not charge any interest on the warehoused part of a split mortgage.

"The current average tracker pay rate to the bank is below the current, all-in cost of money to the bank," Mr Boucher wrote.

The bank will now charge 2.5pc interest on the warehoused portion for residential customers on variable rates. If they are on a tracker, the low tracker rate will apply.

However, the bank has not addressed concerns of Central Bank Governor Patrick Honohan. He wants the rules on the repayment set down at the start of the arrangement. This is to make it clear the borrower should not have to repay more than the mortgage is worth.

By Charlie Weston and Colm Kelpie

Irish Independent

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