Wednesday 24 January 2018

Mortgages will be 'split in two' for struggling homeowners

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Getty Images

Charlie Weston Personal Finance Editor

SEVEN banks have been cleared to offer struggling homeowners a chance to set aside a chunk of their mortgage for a number of years -- although it will cost them more in the long run.

The Irish Independent has learnt that 'split' mortgages are to be offered by most major banks, allowing part of the mortgage to be 'parked'.

It will allow vital breathing room for some families who may be seeking time to get their finances in order.

But it can be revealed that the banks are planning to impose interest charges on the part of the mortgage that is being set aside, despite the objections of the Central Bank.

The new split mortgages will be offered by AIB/EBS, Bank of Ireland, Permanent TSB, Ulster Bank, KBC Bank, ACC and the IBRC which now controls both Anglo and Irish Nationwide.

The banks are to receive letters from the Central Bank today, telling them to have pilot schemes on the new split mortgages completed by the end of September.

It is expected the schemes will be in place by the end of the year.

Other proposals put before the Central Bank include:

• Reduced interest rates for those unable to meet monthly payments. Only two banks are proposing this.

• Putting some homeowners on long-term, interest-only deals.

• Mortgage-to-rent schemes where ownership of the home is given up but the house is rented back from the bank or a housing charity.

The split-mortgages idea means that part of the total homeloan will be shelved or put to one side. For example, a family that was struggling to make repayments on a €200,000 mortgage would ask for up to half of this put to one side. They would then only have to deal with half of their mortgage until they got back on track financially, which could take years. Regulators and consumer lobby groups had hoped that banks would not apply any interest on the portion of the mortgage that is parked.

But the Irish Independent has learned that the seven banks intend applying interest.

Some banks are planning to apply the same interest rate to the parked part of the mortgage as that applied to the original mortgage.

Other banks are to apply a discounted interest rate to the parked part.

Either way, this would not reduce monthly repayments by as much as had originally been hoped.

For example, a family with a €300,000 mortgage on a 3pc interest rate may be unable to meet monthly repayments of €1,400.

They may seek to benefit from a split mortgage and have half the capital owed put aside for a few years.

If the banks had agreed to apply no interest to the part of the mortgage that was parked, this could reduce monthly repayments to around €700.

But if they were charged interest on the part that was parked, the repayments would be more like €1,000.

David Hall, of the New Beginning mortgage holders' support group, said charging interest in this way would scupper the entire split mortgages plan.


He claimed that people would be pushed into taking up the option of declaring themselves insolvent under the upcoming personal insolvency legislation instead.

With a split mortgage, full mortgage repayments would be made if the homeowner gets back on their feet financially, retires and gets a lump sum from their pension, or sells the house and downsizes to a smaller one.

The warehoused part of the mortgage could also be paid off when the mortgage holder dies and the house is sold, or the children in the house start earning. Split-mortgage deals would be reviewed every three years.

Some 116,000 mortgage holders are either in arrears for three months or longer, or have had to do a deal with their bank to lower monthly repayments.

Most of those who have done a deal with the bank are paying the interest only on the mortgage.

Irish Independent

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