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.