AIB HAS become the first of the major banks to announce that it is prepared to write down some homeowners' mortgages. However, with more than 240,000 distressed loans, much more, needs to be done to solve the mortgage arrears crisis.
AIB is offering to write down some of the debt that has been parked for homeowners who have split mortgages. These are loans where the debt has been split. The homeowner continues to make repayments on a portion of the outstanding loan while the remainder is laid up.
Now AIB is taking the split mortgage a step further. Where customers stick to the revised repayment schedule – many homeowners who have previously had their home loans restructured have fallen into arrears once more – AIB is offering to write down at least some of the parked mortgage.
While details are still vague, it would appear that a family with an original mortgage of €300,000 could see as much as €40,000 wiped off their debt.
So is this the decisive breakthrough in solving the mortgage crisis? With almost 240,000 mortgages with a combined original value of more than €46bn either in arrears and/or having been restructured, some good news is long overdue on the home loan front.
AIB certainly deserves some credit for grasping the nettle of mortgage write-downs. Even after recent increases, average house prices are still down almost 50pc on their 2007 peak. While we have no accurate figures on the extent of negative equity – where the amount a borrower owes on his or her loan exceeds the value of the property against which it is secured – an August 2013 ESRI working paper estimated that 238,000 mortgages on owner-occupied houses and apartments were "under water".
Throw in buy-to-let mortgages and the number of property owners stuck in negative equity easily exceeds 300,000.
Unfortunately, the AIB move, while welcome, comes nowhere near addressing the scale of the problem. Even in a best-case scenario, one of its borrowers could expect to see just over 13pc of their original loan written off. More – much more – will need to be done to address the problem.
And it would appear that AIB, which is of course 99.8pc state-owned, is very much on its own when it comes to mortgage write-downs. Bank of Ireland has obstinately set its face against write-downs for customers with split mortgages. Indeed, it continues to add interest to the parked portion of such loans.
In truth, there is no single magic bullet which will miraculously cure the mortgage crisis. It is going to take a series of measures by all of the banks to solve this problem.
According to the latest Central Bank numbers, approximately 184,000 owner-occupied mortgages and 53,000 buy-to-let mortgages were either in arrears and/or restructured at the end of last September. Of these, 60,000 owner-occupied mortgages and 20,000 buy-to-let mortgages were more than 12 months in arrears on their repayments.
It should be as clear as daylight to even the most sympathetic observer that many – probably most – of the 80,000-plus mortgages more than a year in arrears are hopeless cases. Unfortunately, repossession rather than write-down will be the most likely outcome for many.
This sad reality should not blind us to the fact that there are many homeowners whose circumstances have changed and now find themselves, through no fault of their own, with an unaffordable mortgage on a property which has lost half or more of its value.
Despite this, most homeowners in this situation have tried their best to pay what they could. It is these homeowners who deserve to be helped.
Now that AIB has taken the first step, the other banks must follow.