Wednesday 13 December 2017

Banks tell mortgage defaulters: 'Get dig out from parents'

Mark O'Regan

Mark O'Regan

First-time buyers in mortgage arrears are increasingly being pressurised by banks to get parents and grandparents to help with repayments.

Finance expert Frank Conway said there is now unprecedented stress on the extended family to get involved, if a mortgage runs into serious problems.

He says it's all part of an increasingly "get tough" policy by the banks.

"I also know anecdotally that a lot of parents are helping their sons and daughters, who are in their 40s and 50s, meet their repayments.

"There's a certain amount of wealth being redistributed that way.

"For those who are in severe arrears, the extended family option is certainly on the table, and any surplus money is being used up.

"The banks are asking people 'is there anyone else in your family who can help you out'.

"These aren't guarantors - these are families helping sons and daughters to come up with desperately needed extra cash.

"A lot of families are in a very difficult predicament.

"Mortgage arrears is very high in Ireland compared to lots of other OECD countries, so it's a real problem area.

"This situation is now coming up time and time again."

Speaking to the Irish Independent, Mr Conway, who is attached to the Irish Financial Review, described the Central Bank's new mortgage lending rules as "a retrograde step" for first time buyers.


"A lot of first-time buyers living abroad will look at Ireland and say that's not a country I want to come back to, because it's just too hard to try and purchase a house.

"They've cemented the rules, and really made it much more difficult for hard-working young couples, who are paying rent, to get into the property market."

He also said a trend whereby young couples will opt for "super-term" mortgages of 30 years or more is set to continue.

If a loan is stretched out over a longer period the monthly repayments are lower - but it ties borrowers to a lifetime of debt.

During the height of the boom, some lenders were offering 40-year mortgage terms.

However, lenders are now restricted to a 35-year lending period.

Credit union

Meanwhile, it has also emerged that credit unions will give cash loans to parents who want to help their adult children beat the Central Bank's tough new mortgage guidelines.

The credit union movement has earmarked an initial €100m for home loans, as it prepares to enter the mortgage market, in a move which is likely to increase overall competition among lending institutions.

However, the fact that credit unions will let parents borrow substantial amounts to help their children get on the property ladder, is likely to break the spirit if not the letter of the new Central Bank rules.

Meanwhile, rents are set to soar by 10pc in some major urban areas following the Central Bank's strict new mortgage lending rules, a leading expert has said.

However, interest rates on lending will come down in the months ahead as banks "crank up the competition" for new customers.

Karl Deeter, a financial analyst and compliance manager at Irish Mortgage Brokers, predicts increases across the rental market.

"The Central Bank's revised lending rules will have the effect of guaranteeing security of income for landlords for quite some time to come," he told the Irish Independent.

"They'll push up rents - but they won't bring more houses on stream. I see double-digit rent increases, around 10pc, in cities such as Dublin, Cork and Galway. In more rural areas the increases will be in the low single digits."

Irish Independent

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