Smart Consumer: How to find your way through the mortgages minefield
There was some good news for those with distressed mortgages this week when the new Programme for Government outlined a range of measures to help them.
About 80,000 homeowners are having problems paying their mortgages, according to the Central Bank.
More than half of these are in arrears, with another large chunk having had to get their mortgage deal restructured (they are paying the interest only or paying the mortgage over a longer period) because they cannot meet the full payments.
The arrears level is expected to rise this year as higher European Central Bank rates are anticipated.
Under the new Government's programme, it is proposed to change the law to make lenders wait two years instead of one before initiating legal action to repossess a family home.
At the moment when a mortgage holder is in arrears and has not worked out a deal to repay what he or she owes, a lender can start legal action after a year.
But if a homeowner is co-operating with the lender, moves to repossess the home cannot be made. The new Government says that where an honest effort is being made to pay some of the mortgage, it proposes doubling the moratorium to two years.
Expert group criticised
The new Programme for Government criticises the recommendations made by an expert group on mortgage arrears, which produced its final report at the end of last year.
The expert group, which was headed by insolvency specialist Hugh Cooney and included Central Bank regulator Matthew Elderfield, made recommendations that were "inadequate to address the scale of the crisis" for mortgage holders, the programme document says.
The main recommendation from the expert group was that mortgage holders in trouble should be able to defer some of the interest on their loan for up to five years.
Help for homeowners
Instead, the new Fine Gael/Labour plan sets out a range of additional measures it proposes to help strapped homeowners:
- Banks and building societiessupported by the State will have to cut standard variable rates by 0.25% by making internal savings.
- First-time buyers who bought between 2004 and 2008 will get extra interest relief. This could mean a maximum of €500 a month in mortgage tax relief for a couple with a large mortgage. At the moment the most a couple can get in mortgage tax relief is just over €400 a month.
- The State's Money Advice and Budgeting Service (MABS) will get legal powers to help protect families from creditors. It will become the Personal Debt Management Agency and have "quasi-judicial status", according to the programme.
- Changes to bankruptcy laws will be fast-tracked, which may make it possible for consumers to have some debts written off.
- The Mortgage Interest Supplement scheme, which is paid out of the budget of the Department of Social Protection and averages around €300 a month, will be extended. This will be cheaper than paying rent supplement, the programme notes.
Surge in numbers restructuring
Some 60,000 homeowners had restructured their mortgage by the end of December, the Central Bank revealed last week.
It was the first time official figures were released on the numbers of mortgages that have been restructured.
The main restructuring options are paying the interest only, paying interest and part of the capital, taking a payment holiday, or changing the term of the mortgage to lower the repayments.
More than 35,000 of those who restructured their mortgage are not in arrears and are meeting their monthly repayments.
However, another 25,000 homeowners have had to restructure due to what the Central Bank describes as "financial distress".
Mortgage brokers said the fact that 60,000 have managed to get a deal with their bank to lower repayments shows it is possible for struggling homeowners to get co-operation from their lender.
"The number of restructures that has taken place shows that arrangements are available to those borrowers who seek help in dealing with pre-arrears or arrears difficulties," the Central Bank said last week.
Under a statutory rule book for mortgage lenders, the Central Bank's Code of Conduct on Mortgage Arrears, banks and building societies must have people in each branch to deal specifically with those in arrears, or those who feel they may end up in arrears (known as pre-arrears cases).
If you are looking for a deal on your repayments you will need to prove your income and expenditure, to show you cannot afford the repayments.
Lenders are not obliged to offer you an alternative repayment plan, but if they refuse they must set this out in writing, which must also set out other options such as voluntary surrender or trading down.
If they do give you a deal, lenders must take into account all your debts.
Those people not happy with the response of their lender can appeal to the lender's appeals board. If you are still not happy you can make a complaint to the Ombudsman for financial services.
The code states that lenders cannot bring legal proceedings to repossess a home if there are arrears until every reasonable effort has been made to agree alternative repayments.
Crucially, if you co-operate with your lender on an agreed repayment schedule your primary residence cannot be repossessed, according to the Free Legal Advice Centres.
All of this means there are considerable protections now in place to help struggling homeowners.
And if the new Government carries through on its promises on mortgages there could be more protections.
* For more information see centralbank.ie for a guide to the Code of Conduct on Mortgage Arrears, and a Q&A booklet. Also see the Free Legal Advice Centre's booklet on flac.ie. Try also the Money Advice and Budgeting Service (MABS) at mabs.ie.