Interest-only mortgage builds trouble

Mike Mahon was having trouble renting out his buy-to-let apartment in Limerick City and contacted his bank to ask if he could restructure his loan, as he was falling behind in repayments.

That was five years ago and since then, Mike has been paying interest only. However, several months ago, the bank informed Mike, 67, that his loan was about to revert to capital and interest repayments.

He was stunned when he saw how much his repayments would rise: In 2007, his mortgage had cost him €500 per month, before dropping to €150 when it was restructured to interest only. Now it is €965 per month.

According to the Central Bank, 15% of mortgages in the Irish market are buy-to-let and it is widely believed that the ending of interest-only repayments on such loans will have a very negative impact on the bank’s loan books. The Central Bank has estimated that arrears in this sector could rise to 18% by year’s end.

Mike bought his apartment about 15 years ago for €90,000. An apartment in the same block was also sold by Nama recently for €35,000.

The Dublin-based retired pilot has told Ulster Bank that he can not make the repayments, but he has been warned he will have to pay up or face repossession.

“I just want to advise people who are restructuring their loans to think twice about going interest only,” he said. “I have asked repeatedly to have the term of my loan term extended so I can manage repayments, but I have been told by the bank that I can’t.

“Anybody who goes interest-only and doesn’t have their loan term extended afterwards will be facing the impossible hikes that I am now facing.

“I am now being threatened with repossession. I am lucky that this is not my family home but that hasn’t stopped me from worrying and stressing as the apartment is worth so much less than what it once was and I still owe a lot of money.

“I was a customer of this bank for 40 years and my children have all got mortgages from them.

“Its seems to me that they have got a crowd of headhunters in recently to deal with customers in arrears and they are relentless. I haven’t been sleeping and I had to go to the doctor as I was feeling so stressed.

A spokesman for Ulster Bank said they could not comment on individual cases but they always work with customers in arrears. They said the client should attempt further contact with his bank.