Wednesday 22 November 2017

Homeowners offered delay on payments, but no bailout

Charlie Weston

Charlie Weston

TENS of thousands of homeowners struggling to pay their mortgages will not be given a bailout.

Finance Minister Brian Lenihan last night ruled out a debt forgiveness scheme similar to those in the US.

He instead backed a 'deferred interest scheme' to combat their arrears crisis. But this will only save them an average of €700 to €800 over five years.

Under the plan, lenders will be asked to allow hard-pressed homeowners to repay two thirds, or 66pc, of their mortgage interest and defer the rest for up to five years.

Headed by insolvency expert Hugh Cooney, the group that came up with the plan issued its final report yesterday.

It said the scheme would apply to those who already have a deal with their lender and had been paying some of the interest for six months.

Known as the deferred interest scheme, it would allow mortgage holders to put aside that portion of the interest charge they are not currently paying for up to five years.

Mr Cooney said this would save homeowners between €700 and €800 over the five years.

So far, four financial institutions representing more than half of the property mortgage market have agreed to the proposals drawn up by the Government's mortgage and personal debt group.

Mr Lenihan suggested pressure would be put on others to row in behind them.

Mortgages would be declared "unsustainable" when deferred repayments amounted to a year-and-a-half's interest or when borrowers were still on the scheme for five years.

Those with "unsustainable" mortgages would then be eligible for social housing and their home would not be repossessed before they were allocated a new one.

The debt group has also called on lenders to help homeowners in negative equity to "trade down" to a more affordable home to cut their monthly repayments.

"We are committed to solutions that are fair and appropriate to the current circumstances of Irish homeowners. The Government accepts the group's recommendations and wants to see them implemented without delay," Mr Lenihan said.

As revealed in the Irish Independent last week, new Central Bank figures confirm that almost 40,500 homeowners have fallen behind on their repayments by three months or more.

This accounts for just above 5pc of all mortgages, with around 28,000 of those gathering arrears for more than six months.


New Central Bank figures reveal an additional 12,000 homeowners got behind on repayments in the past year.

And Financial Regulator Matthew Elderfield has warned the arrears level is set to rise.

Despite this, there will be no debt forgiveness scheme for struggling homeowners, according to the final report of the government-appointed expert group.

Along with those in arrears, another 30,000 have been forced to agree a deal on lower repayments with their lender. Most of these are paying interest only on their mortgages.

This means a total of 70,000 people are struggling with their mortgage repayments, as revealed in this newspaper last Saturday.

Mr Elderfield warned arrears were likely to rise.

"We think it will get worse before it gets better. But it definitely will not reach Morgan Kelly levels of 100,000 or higher."

But he said the arrears level would probably stabilise if unemployment did not spike even higher than it was at present. And he dismissed alarmist predictions from UCD economics professor Morgan Kelly who said there were already 100,000 homeowners in trouble with their mortgages, and that, in time, 200,000 would default.

"We think it will get worse before it gets better. But it definitely will not reach Morgan Kelly levels of 100,000 or higher."

Mr Elderfield said the level of arrears, at 5pc of mortgages, would not mean the banks would need more capital.

Permanent TSB yesterday said the numbers of mortgage customers who are three months or more in arrears have risen, but there has been a levelling off of those who are beginning to get into arrears.

Those who are struggling with their mortgages should be able to defer some of the interest part of the mortgage, the Government-appointed expert group on mortgage arrears and personal debt has recommended.

So far AIB, Bank of Ireland, Permanent TSB and EBS have signed up to operate this scheme, which is voluntary for banks.

But subprime lender Start, which is responsible for the lion's share of repossession cases in the courts, has yet to sign up for the deal.

The debt group also recommends that those who have not made any repayments for 18 months or more should be encouraged to hand back the keys of their home and be able to get on to the local authority housing list.

There are some 56,000 people on the housing lists of local authorities.

Irish Independent

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business