PTSB to hit tracker mortgage borrowers

Landlords and holiday home-owners face higher monthly repayments as bank seeks legal cover to change loan terms

Eamon Quinn

Permanent TSB is plotting the first controversial assault by banks on loss-making tracker mortgages by resetting the monthly payments it charges investment property borrowers, the Sunday Tribune has learned.

From this autumn, thousands of small landlords and holiday home-owners face paying steeply higher monthly payments and higher interest rates.

Other banks will likely follow suit if the leading mortgage lender wins the Financial Regulator's approval for the move.

The bank briefed its most senior managers last Tuesday on plans to renegotiate with residential investment property customers who borrowed money at so-called tracker rates that are linked to official European Central Bank rates.

The bank is understood to have sought legal advice as to whether or not it is within its rights to renegotiate with its tracker mortgage customers by triggering review clauses in the loan contracts.

Permanent TSB is a leading lender to residential investment property-owners. At the height of the housing boom in late 2006, lending by Dublin banks to residential investment buyers amounted to over €27bn, or a quarter of all outstanding mortgage debt.

Customers buying investment or 'buy to let' properties typically borrowed money for 25 years with monthly interest-only payments.

After triggering terms in the contracts to review the home loan terms after the first three or five years, Permanent TSB now plans to write to the borrowers demanding both interest and capital repayments.

If customers are unable to pay, they are likely to be offered a higher tracker rate or a "suite" of variable interest rates at much higher levels.

Borrowers face increases of almost 250% in their repayments and will likely pay higher interest rates because they will be unable to meet the terms, said Michael Dowling of the Independent Mortgage Advisers' Federation.

"It risks a US-style wave of borrowers throwing in the keys because they cannot afford the new repayments," Dowling said.

Borrowers are likely to argue that the bank is using the review terms to push them onto higher rates. Permanent TSB will argue that borrowers always knew they would eventually have to pay interest and capital repayments.

Dowling calculates that an investor who borrowed €500,000 and is currently paying €730 in interest per month will now face a new monthly bill of €2,470 in interest and capital repayments.

June 27, 2010

Comments

#1 Sean commented, on June 27, 2010 at 8:33 p.m.:

Weasels the lot of them,is there any group more despised in Ireland besides paedophile and bankers?Probably not.

#2 Tommy commented, on June 28, 2010 at 1:55 a.m.:

About time. Ultimately someone somewhere is being screwed in order to subsidise the unsustainable rates of tracker mortgages. In this case it's investment mortgages on variable interest rates who are being charged an average of 2% more than the standard variable. The glory days of the tracker mortgage are coming to a close, time for everyone to pay their fair share.

#3 Derek Brawn commented, on June 28, 2010 at 4:51 a.m.:

Anyone who has lived & worked in the UK will know that building societies & banks there e.g. the Nationwide, have their own estate agents – thanks to reckless lending during previous Boom-Bust property cycles. It now seems the PTSB are to follow suit! They could end up with many thousands of repossessed Residential-Investment-Lets.
I know of one West Cork-based investor who owns 30 rental properties, accumulated over a 14-year period. All are financed with interest-only mortgages. Some EUR 4.5 million (less than half the total outstanding mortgages) was bundled & financed by the aforementioned financial institution at ECB +0.6% Tracker. Most are rented out to students of UCC & University Hospital, at rents of around 800 per month per house.
The problem for the PTSB is simple: if they switch these customers from “interest-only tracker” loans to full capital repayment, then the rents will not cover the monthly funding costs & repossession will be the inevitable conclusion. So far, Landlords have resisted such changes on the grounds that it would force them to divest themselves of these assets, into a falling market. But PTSB already know this.
In short, repossession sales will then re-price the entire surrounding market. Effectively, the PTSB will start a new “race to the bottom”!
Just FYI, the recent EUR 200 2nd home tax statistics from the Inland Revenue, show that as of end-2009, there were 1,432 Landlords with 10+ Investment Properties.

#4 Niall commented, on June 28, 2010 at 1:30 p.m.:

Hope this is not the case as the banks will lose in the long run. There are many people in my position who bought in the peak and are in negative equaty now and with rents just covering the loans this would make the mortage non payable when you consider all other expenses such as maintance, insurance, tax and the fact that you can only put 75% of interest in as an expense. Personally I will refuse to pay anything other than the interest payment and if they want to repo, let them and sell the house for 65% of its value ?? Remember your family home should be protected.

#5 Tom commented, on June 28, 2010 at 1:34 p.m.:

It will be interesting to see how they get over the code of ethics demand from the regulator whereby they have to give the best possible advice to their clients. Surely being forced into handing abck a tracker mortgage does not constitute Best Advice. This will be were their application founders with the regulator if he sticks to his own code. Interesting days ahead.

#6 Tony commented, on June 28, 2010 at 6:45 p.m.:

I provided PTSB with details of my income prior to drawing down my interest only tracker mortgages. Regardless of the small print in the loans concerning their right to review the interest only payment, they knew, when approving the loans that I couldnt possibly afford capital and interest repayments over the 20 year term . The expectation on both sides was that the mortgages would be cleared when the properties were sold at a later date. Surely they bear some responsibility for granting loans on which they knew the capital could only be cleared when the properties was sold. Like Niall, I will not be paying anything other than the previously agreed interest payment. Agreeing to go onto a higher interest rate in order to stay on interest only payments would be a really dumb move!

#7 Andrew commented, on June 29, 2010 at 7:51 a.m.:

Investemnts can go up as well as down. I'm sure many of the amateur landlords have heard this before. However they thought Ireland was different and property only went up! Well now it's time to pay and your idea on getting rich on the backs of others doesn't sound so great. You all thought you were entrepreneurs! property investment does npt fall in to that category. Lower property prices is ultimately good for an economy,high prices for property suck the life out of an economy and make us more uncompetative.Time to end this phoney war and grasp the nettle.Taxpayers are subsidising landlords through social welfare supplements,tax breaks etc. Time to let the market decide.

#8 FARRELL commented, on June 30, 2010 at 9:55 a.m.:

Surely the people who took out these loans were aware of the risk. Borrowing money to gain a profit purely on the strenght of repaying interest on a loan requires a long term investment. These people should realise this and get on with life, The public kitty is empty. Typical Paddies ,no wonder I got out.

#9 Finbarr Murphy commented, on June 30, 2010 at 9:11 p.m.:

This is not all about the buy to let market. This is also about small businesses staying open and maintaining jobs. We have a Tracker Mortgage from the PTSB which we used to buy a premises to run our retail business. We have being paying interest only over the past three years while prudently putting the capital repayments into a pension fund. We were advised that this the most tax efficient way forward for our business and gives us sufficient funds at the end of the mortgage to settle the amount outstanding. This was the basis on which we entered into this arrangement with the PSTB. This was the basis on which they offered us the mortgage. So now they want to change the goal posts and the pitch! If they get away with this then our business will be in trouble. We have cut our costs to the bone and we are just about hanging in there. If PTSB have their way it will be 6 more people on the dole. I imagine you will see plenty of this around the country. So it the same old story. Small businesses paying for the banks mixtakes while those who gambled with our country ie Bankers, Developers, Politicians and Senior Civil Servants continue on regardless, on huge salaries and expenses with a few token resignations accompanied with large and expensive payouts. The big developers can shelter their money abroad, sign their property over to their nearest and dearest and now it seems they will be paid salaries and expenses from NAMA. The muppets we have as politicians and senior civil servants as well as those we have in charge of our banks all continue on regardless. While the cost for their mess, will be paid for by small businesses and the ordinary taxpayer. Sorry about the rant. It is time to say no

#10 Martina commented, on July 1, 2010 at 11:06 a.m.:

I used savings I had to buy an apartment to let as part of my pension plan. I borrowed on interest only Tracker and the rent from the tenant just about covers my costs after mortgage repayments, management fees (over 1600 year), new tenant registration with PITB, new BER certificates, 200 euro per year in extra levy, estate agent fees, maintaining the property and paying mortgage protection and insurance. I did not see that I would earn anything in the short term but hoped that, by holding on to the property until my retirement age, it would have increased in value to give me some return on investment. This looks very unlikely now as the value of property has crashed. I am not rich, I don't have numerous investment properties, just this one, so allowing PTSB to do this to me would be a disaster. I would have no option but to hand back the keys and kiss goodbye to 25k savings which took me years to build up. Re the government and taxation - they are already screwing investment property owners and many of us had to borrow to pay the stamp duty on the properties. This is a significant portion of my mortage! Would the govenment like to refund the portion of stamp duty that was overcharged based on the over pricing of the market due to failures on their behalf? I don't think so. Someone has to intervene here and play fair. PTSB were happy enough to offer me this deal to get my business, now, like any fair relationship, it is time to stick with it "for better or for worse"!

Comments

Comments closed

Share this article

Search

This issue 5 years ago

RSS Feeds