Mortgage holders in negative equity will soon have options

People with mortgages to have several options to deal with negative equity

The mortgage crisis in Ireland has been well documented with countless people trapped in significant negative equity which they are finding next to impossible to repay. Coupled with lowered activity in the domestic economy due to a high unemployment rate, home owners face a protracted battle with their current debt.

With the nation gripped by the effects of the recession for four years, the institutions who approved mortgages that ultimately proved unsustainable are coming to realization that arrangements will have to be made. Indeed, banks are invariably formulating a set of mortgage products with some even piloting schemes with a selection of troubled mortgage holders. Lenders are now preparing to offer a range of more viable options to those with long-term arrears.

The only alternative product available to the general public is split mortgages. This is where your mortgage is split into two portions – a portion that you continue to pay off and another portion which is put aside. The ‘active’ portion being paid off will be subject to interest while the ‘dormant’ amount would only be repaid when the first portion is cleared or if your financial situation improves. However, some banks will apply interest charges on both portions while other won’t. For example, AIB and EBS are not applying interest on the amount put aside.

But BOI and PTSB have said that customers availing of this option will pay full interest on the full loan. Currently, three banks are offering split mortgages: AIB, BOI and EBS. Other banks are either testing their version of the scheme or in the process of launching it. Despite some debate from experts about the viability of the scheme if some lenders were to apply interest charges on both portions, using the scheme will allow those in debt trouble to keep their homes.

For those willing to move to a more humble abode, there is a more appropriate option. Owners who are struggling to repay a mortgage on a property in negative equity can avail of a trade-down mortgage. This type of loan allows a home owner to move to a cheaper home and carry over any residual debt from the mortgage following the sale of the old house onto the new mortgage. Like split mortgages above, this products is currently only available with AIB, BOI and EBS.

Considering the above choices, there is also another option that could be used by banks to fight against the arrears crisis – write-offs. The idea of writing off debts has sparked much debate. Considering that almost 80,000 mortgage holders are in arrears of at least 3 months, the prospect of resorting to debt write offs for unsustainable mortgages are become ever more real. The emergence of these options suggests that the banks are starting to finally get proactive with dealing with negative equity mortgages.