Mortgage debt write-off unlikely

HOUSEOWNERS should not expect any debt forgiveness from banks even though Bank of Scotland (Ireland) has moved slightly in that direction.

BoSI, which operated the Halifax banks in Ireland, said yesterday that it has begun to restructure debts owed by buy-to-let borrowers in Ireland in exceptional circumstances.

It is understood that for such borrowers who cannot repay their loans the bank is writing off part of the capital owed. Reports also said that in a small number of cases capital has been cut for owner occupiers if a forced sale left an outstanding loan.

The lender made it clear, however, that it would still require customers to pay their debt in full, but added it will work with customers to restructure their debt in bona fide cases. It is estimated that BoSI could have as many as 50,000 mortgage customers in Ireland.

Last year it closed its Halifax branches in Ireland and later in the year announced it was withdrawing from the Irish market completely.

Broker and member of the Trusted Advisor Group, Kevin McNerney, said he does not believe that this move on mortgages will lead to other banks following suit like they do with interest rate hikes.

“Bank of Scotland started the process of pulling out of Ireland last year and I see this step as a continuation of this process. They are obviously looking at extreme cases where they have examined in depth the borrower’s current and future ability to re-pay the debt owing to them.

“Where it is evident that someone is not likely to be in a position to clear the debt in full, it seems BoSI have decided that it is possibly easier and cheaper to write-off part of the debt now rather than trying to pursue them through the courts for a judgement,” he said.

He said he thinks it will be some time before we would hear of the Irish banks writing off mortgage debt for householders or small investors.

Director of Moneycoach.ie, Frank Conway also said that he finds it hard to see other banks following.

“If you remember back to last fall, Mathew Elderfield seemed adamant that he would not allow banks to offer debt forgiveness, so I think this just killed off the debate,” he said.

Last year Wilbur Ross, who is believed to be in the running to purchase EBS, said that he believes that there should be some deal on this for mortgage holders.

Chief executive of the Irish Brokers Association, Ciaran Phelan said BoSI’s move is based on the realisation that you cannot get blood from a stone.

Meanwhile, fears have been expressed that other banks could raise standard variable rates this week.

Yesterday KBC Bank increased its fixed rates but left its standard variable rate unchanged. KBC is raising its two-year fixed rate from 3.7% to 4%, its three-year fixed rate from 3.9% to 4.45% and its five year fixed rate from 4.5% to 5.2%. KBC is offer a contribution of €1,000 towards legal fees for customers who are switching. The maximum loan-to-value for switchers is 90%.