Monday 23 October 2017

Mortgage aid plan 'will just put families in more debt'

Charlie Weston Personal Finance Editor

THE solution favoured by the Central Bank for mortgage holders in arrears will leave homeowners worse off, experts say.

As well as criticising split mortgages, they accused banks of attempting to get homeowners to consolidate credit-card and other short-term debt on to the split mortgage.

Central Bank governor Patrick Honohan said last month that split mortgages were the best way to keep over-borrowed families in their homes.

A split mortgage is an arrangement where part of the mortgage is 'warehoused', with payments to be made on the balance.

Those payments are reduced for five or 10 years.

Families only make repayments of capital and interest on the amount of mortgage that they can now afford.

The other part is parked and dealt with later, but Bank of Ireland, Danske Bank and Permanent TSB charge interest on both parts of the split mortgage.

Now the Association of Expert Mortgage Advisers has called for this type of split mortgage to be banned.

DJ O'Donovan, of the association, claimed that paying interest on both parts of a split mortgage would leave families worse off in the long run.

"There is a distinct possibility that they are misleading the homeowner into believing that they have secured a long-term viable solution to their financial troubles – when in fact they are simply racking up further debt for another day," he said.

The group said homeowners would have to win the lottery or double their income over 10 years to clear the parked portion of the mortgage.

Split mortgages have also come in for criticism from the Money Advice and Budgeting Service, which found that huge numbers of those in mortgage trouble were in their 40s and 50s. These people would be retired by the time they came to repay the warehoused part of the split mortgage.


The association claimed some banks were trying to force troubled mortgage holders to consolidate short-term debits, such as car loans, into a split mortgage – a practice that has been widely condemned in the past.

The mortgage group recommends that the parked amount of a split mortgage should not have any interest charged on it.

Bank of Ireland charges full interest on the parked portion of the split mortgage, while Permanent TSB has been charging 1pc interest.

A spokesman for Permanent TSB said it was now rethinking this. Bank of Ireland had no comment.

Irish Independent

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