Bank of Ireland customers suffer as banks allowed pursue different split mortgage models – McGrath
Published on: 06 August 2013
Fianna Fáil Spokesperson on Finance Michael McGrath TD has said the Central Bank must urgently intervene to remove the dramatic differences in the split mortgage offers being made by different banks to borrowers. At present, a Bank of Ireland split mortgage customer will pay tens of thousands of euro more than an AIB customer for example.
Deputy McGrath commented: “As far back as September 2011, the split mortgage model was identified as an important long term forbearance option in the Keane report. However, different banks are offering very different terms on their split mortgage offer. For example, AIB is not charging any interest on the warehoused portion of the mortgage whereas Bank of Ireland is charged full interest on it. Permanent TSB has charged 1% interest on the warehoused mortgage but is moving to a no interest policy.
“The dramatic difference for the customer is best illustrated by way of an example: Let’s take a distressed borrower with a mortgage of €200,000 who qualifies for a split mortgage with 50% of the mortgage being warehoused for a ten year period. With AIB, no interest is charged on the warehoused €100,000. However, under the Bank of Ireland model, the borrower will clock up an interest bill of almost €57,000 on the warehoused principal sum of €100,000 (assuming an interest rate of 4.5%). Under the Permanent TSB model, the borrower will clock up an interest bill of €10,500 on the warehoused mortgage.
“I have raised this issue on the floor of the Dáil and by parliamentary question on a number of occasions but to no avail. Both the government and the Central Bank have again taken a ‘hands off’ approach on this issue and have allowed the banks to set their own rules for the split mortgage solution.
“It is completely unfair that – depending on which bank they are with – a typical distressed borrower would be treated differently to the tune of €57,000 under a solution that has been sponsored by government and the Central Bank. The Minister for Finance and the Central Bank need to intervene immediately to address this blatant discrimination.”
NOTE: Replies to two relevant recent parliamentary questions on split mortgages from Deputy McGrath are included below.
DÁIL QUESTION NO 162
To ask the Minister for Finance for each of the State supported banks, the number of split mortgage arrangements that have been offered to mortgage holders to date in 2013; the number of such arrangements that have been actually entered into; and if he will make a statement on the matter.
– Michael McGrath.
* For WRITTEN answer on Thursday, 18th July, 2013.
Ref No: 36670/13
REPLY
Minister for Finance ( Mr Noonan) : I can inform the Deputy that the State supported banks have provided me with the following information in relation to their split mortgage offerings
AIB
I have been informed by AIB that split mortgage arrangements are one of the options in AIB’s advanced forbearance solutions. All disclosures in relation to forbearance are available on pages 101-103 of AIB’s 2012 Annual Financial Report. AIB has informed me that this information will be updated on 1st August when AIB announces its 2013 interim results.
BOI
I have been informed by Bank of Ireland that it is currently in a closed period, as it prepares for publication of its Interim Results to June 2013 on 2 August 2013. The Bank will update the market generally on progress of its Mortgage Arrears strategy on the occasion of publication of the half-year results.
PTSB
I have been informed by Permanent TSB that it has offered c. 1,500 split mortgages to date in 2013, of which c. 1,000 have been accepted. Permanent TSB has advised me that the significant majority of these offers are subject to the satisfactory establishment of a repayment record over a six month period. Upon satisfactory completion of this term the offer is confirmed.
DÁIL QUESTION NO 174
To ask the Minister for Finance for each of the State supported banks, if he will specify the way, under the split mortgage arrangement, the warehoused portion of the mortgage is treated in relation to interest; if he is satisfied with the way each bank is treated the warehoused portion of the mortgage; and if he will make a statement on the matter.
– Michael McGrath.
* For WRITTEN answer on Thursday, 18th July, 2013.
Ref No: 36682/13
REPLY
Minister for Finance ( Mr Noonan) : I can inform the Deputy that the State supported banks have provided me with the following information on their treatment of the warehoused portion of a split mortgage. The treatment of the warehouse portion of a split mortgage is a matter for the Central Bank.
AIB
I am informed by AIB that the warehoused portion of the split mortgage is deferred – i.e. no repayments are made for an agreed amount of time and there will be no interest charged.
Bank of Ireland
I am informed by Bank of Ireland that it provides a split mortgage option as a suitable sustainable forbearance solution for certain Borrowers under MARP. This option involves part of the mortgage being repaid on an interest-only basis at the customer’s prevailing product interest rate, with capital on this element repaid from an identified source at the end of the mortgage term.
Permanent TSB
Permanent TSB has informed me that to date it has applied a nominal rate of interest (1%) to the warehoused portion of the split mortgage. Permanent TSB informs me that it is finalising preparations to move to an interest free approach to the warehouse and expects this to be available in the coming weeks.