The number of people with high interest rate home loans stuck in investment funds who could actually switch to banks offering lower rates is far less than the 54,000 suggested by the Central Bank, according to a leading mortgage specialist.
The Central Bank’s data, released to Sinn Féin’s finance spokesman, Pearse Doherty, points to about 22,000 borrowers whose loans are owned by the funds and have never had issues with repayments. A further 32,000 have “previously experienced” financial difficulties.
The 54,000 borrowers are out of a total of 80,032 accounts held by nonbank non-lenders (NBNLs) – which don’t originate loans – whose rates have shot up in line with recent interest rate increases by the European Central Bank (ECB).
Mark Coan of financial advisers moneysherpa.ie told The Irish Times that being able to look for an alternative provider was vital as investment fund customers generally can’t fix their rates, with many facing interest rates of 8 per cent or higher. Mainstream lenders, meanwhile, are offering fixed rates of about 4 per cent.
“Taking the [Central Bank] statement at face value you could be forgiven for thinking that it was simply a matter of these customers being more proactive in seeking a provider they could fix with,” Mr Coan said.
He noted that comments from Minister for Finance Michael McGrath and BPFI chief executive Brian Hayes suggested “they also believed this to be the case”.
However, Mr Coan said his analysis indicated that “the upper limit able to switch is more like 20,000. Of the 54,000 cited by the Central Bank, 23,000 are actually excluded from switching to the main lenders straight away as they are currently on what’s known as a mortgage restructure,” he said.
A mortgage restructure is a deal offered by lenders to reduce customers’ repayments often to help stop them going into arrears.
“The catch-22 for restructured mortgage holders is that mainstream lenders require them to be out of their restructure for a minimum of two years before they will accept them,” Mr Coan said. “This means making 24 or more full repayments based on variable rates often over 7 per cent. There are very few of these customers able to pass this trial by fire currently imposed by the banks.”
He added that a further 11,000 or more of those eligible to be assessed for switching can’t meet the “off-the-shelf” lending criteria of the mainstream lenders. “This is despite many of these paying rates almost twice as high as the rates they would pay with a mainstream bank for the last year or so.”
Mr Coan said that “contrary to the impression that could be given by the Central Bank’s letter, 60,000 of the 80,000 with the vulture funds are actually ‘mortgage prisoners’ unable to fix or switch providers as rates rise”.
In its letter to Mr Doherty, the Central Bank did accept that lenders’ own criteria may restrict their willingness to offer switching deals to these customers – with a view among political sources that there was very little appetite for the business among high street lenders.
Brian Hayes, chief executive of Banking & Payments Federation Ireland (BPFI), insisted that “all lenders in the Irish market are open to switching” and said the industry was working to “highlight the potential of switching, especially against the backdrop of cost-of-living pressures”.
Mr Coan said there were workable solutions deployed in other countries that would return many of these customers to the open market, allow them to fix their rates and save them from falling into arrears.
“The Central Bank, banking industry and Government now need to work together to take meaningful action before more families slip into financial trouble,” he said.
