Landlords face losing interest-only mortgages

LANDLORDS could be facing a financial struggle, with many being told by banks that they will notextend their interest-only mortgage.

The Irish Mortgage Corporation said that there would have been many landlords who would have purchased investment property at the height of the boom and would have taken out interest-only loans on the mortgage. However, as mortgage costs go up and rents stay low many of them are looking to have their interest-only loans extended, but are being told that this is not possible by banks, according to the director of the Irish Mortgage Corporation, Frank Conway.

“We are encountering a growing number of small-time property investors who are facing a growing problem of how they will make the repayments on their property loans as banks refuse to extend their interest-only facilities.

“We could be in for a bloodbath in the small-time landlord sector where many properties were financed through interest-only loan facilities on the expectation that this market was all about capital appreciation and relatively quick exit,” said Mr Conway.

Based on a €300,000interest rate of 2%, the interest-only payments would be €500 per month while payments on capital and interest would be €1,199.07 – an increase of €699.07.

Meanwhile, the Irish Banking Federation has launched a website, www.helpinghomeowners.ie which provides information to borrowers experiencing financial difficulties.

The IBF said it is important that borrowers get in touch with their lenders if they are in difficulty.

In terms of homeowners, most of the banks are now working with homeowners on their main residences, if those homeowners exhibit signs of financial stress, such as mortgage arrears.

However, they will often need to see evidence of arrears before they will agree any modification of the loan. This is in marked contrast to 18 months ago where most were reluctant to negotiate.