Up to 30,000 homeowners face losing their properties in the next year, according to industry estimates, after the Expert Group on Mortgages and Personal Debt set an official level at which a home loan is considered unsustainable.
Borrowers in arrears who cannot pay at least 66% of the monthly interest bill on their mortgage will now be vulnerable to foreclosure once their 12-month statutory grace period runs out, even if they have engaged with their lender as recommended by the Financial Regulator and the Irish Banking Federation, the Central Bank has confirmed.
Those who meet the minimum standard can avail of a "deferred interest scheme" for up to five years before the banks can move on them.
Between 15,000 and 30,000 homeowners would fail to meet the new threshold for mortgage forbearance, according to mortgage broker estimates consistent with Central Bank survey data.
The new rule makes clear to the banking industry for the first time the circumstances under which a troubled mortgage is a lost cause.
"It's presented as a positive for struggling homeowners but it provides lenders, particularly those who haven't taken much action so far, with the clarification
and definitions they've been looking for to enable them segment their arrears customers and decide who they should take legal action against," said Ciaran Phelan, chief executive of the Irish Brokers Association. The expert group's recommendations were endorsed by the Department of Finance and Financial Regulator Matthew Elderfield.
More than 28,000 borrowers were at least 180 days in arrears at the end of September, the latest Central Bank arrears and repossession statistics show. A separate survey found about 15,000 mortgages had been restructured, but were not paying full interest – putting them at risk under the new rule. "It is incredibly difficult to come back from 180 days in arrears," said Karl Deeter, operations manager with Irish Mortgage Brokers.
Deeter said he expected the deferred interest scheme to be "a total failure. It's a repeat of Hamp [the US's mortgage modification scheme] or the UK's Homeowners Mortgage Support, which was meant to help 42,000 people but only 34 have used it."
The Central Bank is preparing to break out the number of unsustainable mortgages in its quarterly arrears reports starting next year, according to a spokeswoman.
Get off to a profitable sports betting start today at sportsbetting.co.uk