Light at the end of the tunnel for mortgage customers of credit servicing firms

News of an initiative to allow mortgage holders to move from credit servicing firms to mainstream banks to escape higher interest charges is a welcome development.

The new scheme is one of a suite of measures outlined by the Banking & Payments Federation Ireland as part of its Dealing With Debt campaign. AIB, Bank of Ireland, Permanent TSB, Avant Money, Finance Ireland and ICS Mortgages have agreed initial eligibility criteria to provide guidelines for mortgage customers of credit servicing firms who are seeking to switch.

It is estimated that about 80,000 mortgages accounts are held by credit servicing firms, with Pepper a major player in the market. These are people who had their loans sold to a fund of one sort or another, usually as a result of their bank exiting the Irish market, and are paying rates of up to 10 per cent (this would be a small number in the subprime category who were always paying over the odds for their loans due to poor credit histories) on their borrowings, with rates turbocharged by nine hikes by the European Central Bank since July 2022.

It is estimated that some 22,000 of those account holders have performing loans. In theory, they already have the potential to switch their loan to a mainstream bank if the numbers add up.

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Another 35,000 accounts are in a restructuring arrangement of one sort or another, and this initiative by the banks potentially offers them some light at the end of the tunnel, providing they are paying capital and interest on their borrowings, and have a two-year clean credit history.

The balance are all in long-term arrears and won’t be eligible for switching.

The reality is that only a small number of account holders are likely to switch as a result of this initiative but it is welcome nonetheless. A better solution for many would be if credit servicing firms began to offer fixed-rate mortgages. This would at least take away the stress and uncertainty on repayments over the period of the fixed contract.