Monday 11 December 2017

BoI's 'split mortgage' offer raises concerns

Struggling homeowners must pay interest on 'warehoused' amount

Central Bank Governor Patrick Honohan
Central Bank Governor Patrick Honohan


A LOBBY group has criticised Bank of Ireland for the way it treats struggling mortgage holders.

David Hall, of the Irish Mortgage Holders Organisation, has complained to the Central Bank that a Bank of Ireland subsidiary is charging full interest on "split mortgages" which are intended to help homeowners in arrears.

Split mortgages involve "warehousing" part of a loan over time to allow the borrower to make more affordable repayments on the balance. Bank of Ireland is one of the only lenders to charge interest on the "warehoused" part – leaving the borrower paying full interest on both tranches of the "split" loan.

Mr Hall complained to the Central Bank on Friday after a client with ICS Building Society was offered a "split mortgage" last month.

The bank intended to charge full mortgage interest on both portions of the loan, which would leave the client repaying interest only on the "warehoused" loan as well as interest and capital on the other half.

Mr Hall said the new arrangement was supposed to be a solution to the client's mortgage troubles. But splitting the mortgage would end up costing her more than the original mortgage she had agreed with the bank.

The offer letter said she would "pay more interest" over the course of the mortgage because it would take longer to repay and also charged arrears at a punitive six per cent interest.

Mr Hall has referred the offer letter to the Central Bank, saying it was not fair or sustainable and would prove more expensive in the end for struggling mortgage holders it was supposed to help.

"This offer raises serious concerns, including the fact that this is pretending to style itself as a split mortgage yet it does not meet the current targets set by the Central Bank," said Mr Hall.

The Central Bank gave banks a timetable in relation to providing solutions to those in arrears. The first target was to provide solutions to 20 per cent of those customers by the end of June, which included offering split mortgages, along with other measures.

Central Bank Governor Patrick Honohan has said that split mortgages were the best way of keeping families struggling with debt in their homes. However, the Association of Expert Mortgage Advisers has claimed that paying interest on both parts of split mortgage would leave families worse off in the long run.

Fianna Fail has also criticised Bank of Ireland for charging interest on the warehoused amount of the loan, while other banks such as AIB do not. A Bank of Ireland spokesperson said its split mortgage offer was "consistent" with the definition in the code of conduct on mortgage arrears, "where a lender agrees to split a borrower's mortgage loan into an affordable mortgage loan, which is repaid, and a remaining balance which is set aside or 'warehoused' to a later date".

Irish Independent

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