“The worst thing is not knowing if the bank is going to keep extending the interest-only payments,” the young mother of two, said.
“We can just about pay the mortgage interest, but they keep us in the dark until the last minute about whether they will extend the interest-only for another three months.
Money Express with Jill Kerby sponsored by Laya Healthcare
“The house is worth, maybe €250,000, though we bought it in 2007 for €550,000 when we were both working. We know four other couples on the estate just like us, with less income now and huge negative equity. At least one of them is now over 90 days in arrears.
“We really like the house, but we will go into arrears if the ECB rate goes up, and especially if we lose our tracker.”
Between now and the end of this year, six participating banks - AIB/ESB; Bank of Ireland/ ICS; PTSB; KBC and ACC but not subprime lenders, local authorities or Danske Bank (which has the lowest number of arrears of all the banks) - will have to offer a “long term and sustainable” repayment plan to at least 50% of their customers like Laura and her neighbours.
This might include long term interest only repayment terms, an extended repayment period, long term split mortgage in which up to 50% of the capital (which may include arrears) will be “parked”, ideally interest-free and in some low income/value cases, voluntary repossession that may include debt write-off, a tenancy or rent to buy option.
The split deal will involve the customer only paying capital and interest on the other, affordable, half of the mortgage, but how long such an arrangement continues will depend on the customer’s own financial circumstances, how soon the property market recovers or whether the house is sold.
What happens to any shortfall once the property is sold, or at the end of the repayment term, is still not clear but the CB hinted last week that some relief of the remaining debt might be possible.
Meanwhile, changes to the existing arrears code of conduct will allow the banks to finally foreclose on investment properties, on strategic defaulters and those who are clearly insolvent, though such customers can also pre-empt this by applying for a Personal insolvency Arrangement in an effort to remain in the family home.
Consumer advocates and insolvency practitioners say that this ambitious new plan to clear the arrears logjam will only work if all the customer’s debts - unsecured credit cards, personal loans, utility arrears – are also taken into account.
So what should you do now in light of this new development if you are in arrears or in forbearance, or worried that you might be moving in this direction?
You can wait for a new offer from your lender, or you can be proactive and write to them now and request one.
If you have unsecured debt that is a problem, or could result in you falling into (or deeper into) arrears with your mortgage, arrange to see a MABS official. Complete the financial statement available on their website, www.mabs.ie If you are insolvent –your debts are greater than all your income, savings and other assets including the house - a 5-6 year Debt Settlement Arrangement (DSA) or Personal Insolvency Arrangement (PIA) may be the better solution that one of these CB interventions. These involve the writing off of unsecured debt (which for many people is what they need most) and some secured property debt. You can download a guide to the new insolvency and bankruptcy rules here: http://neofinancialsolutions.com/insolvency-guide-published/
Don’t stop paying an existing agreement with your lender or stop communicating with them. The banks are getting the go-ahead to start foreclosing on such ‘strategic defaulters’, even those who argue that they had no choice but to pay the grocery, light bill or car loan first. Buy-to-let defaulters should expect very little mercy.
If you are eventually offered a “sustainable” deal, take up the government offer of a €250 session to talk it over with an accountant (see www.keepingyourhome.ie ). However, you are the only one who can decide if another ‘extend and pretend’ debt deal is really in your long term interests or that of your family. Is this really the house you wish to remain in, perhaps for the rest of your life, possibly with no equity to show for it after 30 or 35 years?
A PIA (in which you might keep your home) or even bankruptcy will be painful, but it could be the correct solution for the hopelessly insolvent. If you decide to file for bankruptcy, your home and other assets – car, jewellery, shares, some personal goods will probably be sold to repay creditors, but if successful you will be discharged, hopefully at the end of three years, entirely debt free. Free to start over.