Warning over mortgage arrears

HOMEOWNERS are putting their properties at risk by prioritising personal debts, such as credit cards, ahead of mortgage arrears, warns one industry expert.

Debt Management Association of Ireland (DMAI) chief executive Eugene McDarby warned consumers against going into arrears during any mortgage restructuring. Those arrears will inevitably lead to extra charges.

He said putting mortgage arrears on the back burner could see consumers plunge, unwittingly, into deeper debt. The warning comes at a time when consumers owe in excess of €180 billion and are now one of the most indebted populations in Europe, he said.

“I am concerned, now that interest rates have jumped, that mortgage holders will opt now for interest-only mortgages, or consider a moratorium to alleviate the burden of their monthly mortgage repayment. The problem is that this is usually done for all the wrong reasons – ie to pay off other personal debts which are secondary.

Mr McDarby said people are getting into mortgage arrears not only because their income has dropped but also because they are paying non-priority creditors ahead of their mortgage lender. He warned that this is dangerous and irresponsible but has come about, he said, because of the pressure tactics being used by unsecured creditors to get paid quickly.

“People mistakenly believe that if they pay unsecured debt first – ie, credit cards, store cards and other loans – ahead of their mortgage that their mortgage can be restructured into an interest-only loan.

“This is a false economy, and it will only plunge the unsuspecting consumer into further, deeper debt,” he added.

The DMAI chief executive said that this ill-advised approach to debt repayment has come about due to people’s failure to understand the difference between secured debt and unsecured debt.

He warns that people could lose their homes if the creditor who “shouts loudest” is the one that gets paid quickest.

He advises under-pressure mortgage holders to pay what they can during any restructuring process. Should they go into arrears, they will incur unnecessary charges on their mortgage in the longer term.

Early intervention is crucial. He also urges mortgage holders to seek instead a capital and interest repayment scheme and a restructure over a longer term as an alternative solution.

There have been cases where building societies won’t restructure mortgage repayments until arrears are cleared, which is why it’s important not to go into arrears in the first place, he said.

Although legislation for the debt management industry has not been introduced yet, McDarby said lenders are normally open to professional debt management plans if they believe they are being treated fairly and the borrower is doing their utmost to pay the debts off as quickly as possible.