The existing rule introduced earlier this year requiring a 12-month wait before starting repossession proceedings still applies.
But under a proposed new code, the clock would be reset if the borrower agrees a revised repayment plan and would only start ticking if they default on that plan and fail to agree a new one.
Lenders would also be forced to negotiate with borrowers in danger of falling into arrears rather than wait for them to default on repayments before talking to them.
Housing charity Respond described this original practice as “pointless” and said it would be glad to see it come to an end.
“In the past, lenders refused to deal with anyone not classed as being in arrears,” said spokeswoman Aoife Walsh.
“This meant some people were forced into arrears in order to receive any level of assistance or co-operation from their lender.”
Statistics last month showed one in 25 mortgages – a total of 33,000 – were at least three months in arrears and, with interest rates rising, those figures are likely to increase.
The new code, jointly compiled by the Central Bank and Financial Regulator, would set up an appeals process for borrowers unhappy with their lender’s handling of their case, and stop lenders bombarding defaulters with repeat calls and letters when the borrower is already engaging with them.
It would also clarify which properties can benefit from extra protection by defining what exactly is a family home or principal residence, and it would prevent lenders pressuring borrowers to switch from tracker mortgages, which currently enjoy low interest rates, to more profitable types such as standard variable mortgages.
The code has to be formally approved, however, and a consultation period will run until September 3 to allow interested parties, including the banks and building societies, make their views known.
PIBA, which represents independent mortgage brokers, welcomed the proposals, but said the appeals process should be external rather than internal.
Noeline Blackwell, of the Free Legal Advice Centres, said the code would be helpful, but she said it lacked independent oversight.
“It is still very much an internal process which allows the lender to determine what is a suitable mortgage repayment package.”
* Details of the code and how to make submissions on it are available on www.financialregulator.ie or www.centralbank.ie.