# Bank of Ireland reduce interest on warehouse to 2.5%, but only for loans in default



## Brendan Burgess (4 Oct 2013)

http://www.rte.ie/news/2013/1004/478357-boi-split-mortgage/

But Bank of Ireland today confirmed that  interest for the warehoused portion would be at 2.5%, the rate the bank  currently borrows funds.
In a  statement, the bank said: "Arising from the bank's recent meeting with  the Oireachtas Committee we undertook to consider our approach on the  interest charges on split mortgages".


 "We noted that the vast majority of owner-occupied customers in  arrears were on tracker mortgages and that the tracker terms and  conditions would be adhered to for co-operating customers availing of a  forbearance option from Bank of Ireland," it added.


 The statement said that the current average tracker pay rate to the bank is below the current all in cost of money to the bank.




 "Following consideration we have made a decision that for default  owner-occupier customers on a non-tracker variable rate the split  mortgage rate for the warehoused portion will be fixed at 2.5% per annum  for a period of three years, assessed on a case-by-case basis; 2.5%  being the rate at which the bank can currently borrow three year  unsecured funds in the market," the bank added.

*Update 12 May 2014 

*I have clarified this with Bank of Ireland and it only applies to loans in default. If a borrower who is not in default is offered a split mortgage, they pay the SVR on the warehouse.


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## ClubMan (13 Mar 2014)

Brendan Burgess said:


> "Following consideration we have made a decision that for default  owner-occupier customers on a non-tracker variable rate the split  mortgage rate for the warehoused portion will be fixed at 2.5% per annum  for a period of three years, assessed on a case-by-case basis; 2.5%  being the rate at which the bank can currently borrow three year  unsecured funds in the market," the bank added.



As far as I can see the highlighted part above is key and means that not all BoI split mortgage borrowers will get this 2.5% rate on their warehoused amount. Certainly the BoI QFA that I spoke to yesterday while accompanying a BoI mortgage borrower to a restructuring meeting was unequivocal - according to them the 2.5% rate is not standard, is not given to everybody and is subject to meeting various criteria (which they could/would not divulge). However there were heavy hints that being in arrears might be one of the criteria. The person that I accompanied is not in arrears so thought it unfair that they might not qualify for the 2.5% rate because they had met their agreed repayments (full capital + interest, then interest only then deferred interest) and not racked up arrears over the past few years.


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## Brendan Burgess (13 Mar 2014)

Interesting take on it ClubMan. This was widely reported that BoI reduced their rate to 2.5%.   I have not noticed anyone picking up the fact that it was on a case by case basis. 


> for *default  *owner-occupier customers on a non-tracker variable rate the  split  mortgage rate for the warehoused portion will be fixed at 2.5%  per annum  for a period of three years,



This seems to me to mean that people will be put on 2.5% unless there is a very good reason not to.  I can't figure out what that reason would be. If they were in serious arrears and didn't have a sufficient income, they would not get a split mortgage. I would be very interested in hearing if anyone was offered a split mortgage but was charged more than 2.5% on the warehoused part.


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## ClubMan (13 Mar 2014)

This wording - and in particular the use of the word "default" - seems clumsy and unclear to me:


> ... for default owner-occupier customers on a non-tracker variable rate the split mortgage rate for the warehoused portion will be fixed at 2.5% ...



Did they mean "defaulting"? Or "by default for owner occupiers ..."?

Otherwise I don't really know what they mean by "for default owner occupier customers".


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## Brendan Burgess (13 Mar 2014)

ClubMan

Very good point. I took it to mean that the default option was that they would charge interest at 2.5%. But they might mean for defaulting customers.

Brendan


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## Dr.Debt (13 Mar 2014)

This is very amusing. I can't see how Bank of Ireland will solve their problems by continuing this overbearing tough approach.

Presumably, it will only be a matter of time before Bank of Ireland will come in line with the rest of the banks and take a more pragmatic and reasonable approach to solving the arrears crisis.

It all very well adopting an unrelenting approach but only good if its successful in getting the job done. I expect to see big changes to the BOI approach within weeks or months.

If the current approach succeeds, I will be first to acknowledge it.


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## ClubMan (14 Mar 2014)

Dr.Debt said:


> Presumably, it will only be a matter of time before Bank of Ireland will come in line with the rest of the banks and take a more pragmatic and reasonable approach to solving the arrears crisis.


Can you be more specific please?
I presume you mean 0% interest on the warehoused part of a split mortgage for a start?
What else?


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## ClubMan (14 Mar 2014)

Brendan Burgess said:


> But they might mean for defaulting customers.


Which would presumably tally with what we had hinted to us - i.e. that one of the criteria for getting 2.5% was to be in arrears? The corollary being that if you're not then you don't! Seems unfair to me...


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## stentor (21 Mar 2014)

Brendan
I completed a deal on split mortgages with BOI for a PPR and a BTL properties in early Oct last year. The PPR loan was on a variable rate and when the offer letters arrived the warehoused portion was at full interest rate. I pointed out in writing that they had announced this 2.5% rate for these cases ( we were having arrears recapitalised as part of the deal but i was told that the new rate wasn't in place yet. I've been chasing them since then to try to find out why this rate hasn't been applied to the warehoused portion of my PPR split but to no avail.  In the meantime of course I've been paying the full rate on it in order not to default on the new arrangement (which they tell me would result in my loans immediately reversing to the original contract arrangements) They warned that their new repayment schedule must take priority over any other debts and now AIB have cancelled my card and demanded full payment for a CC debt of about 4.5K...which of course I could have kept payments up on if BOI had applied the 2.5% rate on 100k of warehoused mortgage..


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## Brendan Burgess (22 Mar 2014)

Hi stentor 

You need to make a formal complaint in writing about this. 
Quote the press statement above and the media reporting of it. 
Tell them that unless they fix this, you will make a complaint to the Ombudsman. 
It is likely that the guys in the Complaints department will sort this out. 

It's a pity about the Credit Card, but it's still well worth it to get a split mortgage.


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## stentor (22 Mar 2014)

Thanks Brendan. My dealings with BOI over the past 5/6 yrs have been to say the least challenging. Delaying decisions for months at a time which caused me to go in to arrears in the first place. I was always in a position to pay full interest and some capital on my loans but they constantly kept reverting the loans back to full repayments despite saying that they would review the situation after each 6/12 month agreement. In relation to the interest rate I contacted BOI yesterday to be told no update and he couldn't tell me if I was entitled to this special rate...despite telling me last October that i should be. Anyway he said he'd logged yesterday as a complaint..should i write in as well? Also any ideas how i should deal with the CC demand? I dont have any lump sum to offer them but could probably give them 40/50 a month....also is it correct that no more interest should accrue on that balance now the card is cancelled? thanks for the help


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## Brendan Burgess (22 Mar 2014)

Hi stentor

Given the difficulty you have had with Bank of Ireland, I think you should not wait for a reply. You have to escalate the process with a formal complaint. 

Not sure on the CC demand. I think you have to call them to explain what happened.  Send them a copy of the split mortgage letter insisting that you don't pay your other unsecured creditors. Explain that you accept the CC debt in full and intend to pay it. 
Ask them to either restore the CC or suspend the interest if they are going to leave it cut. But to be honest, you are probably better off trying to live without your CC. 

Brendan


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## ClubMan (25 Mar 2014)

Brendan - the CC was from AIB and not BoI in case that matters? It's not clear to me from your replies that you are aware of this?

stentor - I would put everything - in particular any complaint(s) - in writing to the relevant parties.


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## Brendan Burgess (10 Apr 2014)

Richie Boucher has just confirmed to the Oireachtas Finance Committee that they cap the rate on the warehouse  on SVR mortgages at 2.5%.

Brendan


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## stentor (10 Apr 2014)

Hi Brendan
Richie is telling the committee what they want to hear....what he isnt telling them is they are applying the special rate ' on a case by case basis' and therefore its discretionary. I finally got a phone call back from the local BOI mortgage account manager this evening whos now telling me to make a formal complaint so that he can pressurize dublin to apply the 2.5 rate because he cant get it applied, they wont tell him the criteria for getting it . I asked him had it actually been applied in any case that he had handled...no. he says it has been applied on some cases within the whole BOI network but not many


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## Brendan Burgess (10 Apr 2014)

Well wait a few days until the transcripts of the hearing are published, and then send them in with your complaint.


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## ClubMan (15 Apr 2014)

Where are the transcripts available?
I've tried to find them on the Oireachtas website with no success...


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## Brendan Burgess (16 Apr 2014)

Hi ClubMan

The website is shockingly difficult to navigate.

It is here at page 17

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/FIJ2014041000016?opendocument

Deputy Stephen S. Donnelly:What interest does Bank of Ireland charge on the shelved portion of a split mortgage?

     Mr. Stephen Mason: Again,  it goes with the original contract so if the customer was on a tracker  or variable rate, that would be the rate charged on the warehoused  portion.

     Mr. Richie Boucher: At  the last committee meeting the Chairman made a suggestion which I said I  would think about.  When we say we will think about something that  means we do, and we take it seriously.  We recognised there was a  concern.  The vast majority of defaulting customers are on trackers and  we felt there was a perception that we were seeking to make a profit.   Therefore we said that for the period of the warehousing, for three  years subject to review, it would be the cost of three-year unsecured  money to the bank at that time.  That was transparent because we issued a  bond to the market at a rate of approximately 2.5% to 2.6%.

     Deputy Stephen S. Donnelly: So  if a tracker customer pays 2%, the bank will shelve a portion of that  mortgage and charge the same rate on the shelved portion as on the  portion that the customer is paying.

     Mr. Richie Boucher: The tracker rate follows through to the warehoused part.

     Deputy Stephen S. Donnelly: There is no interest rate reduction on the shelved portion.

     Mr. Richie Boucher: No.

     Deputy Stephen S. Donnelly:  Therefore, the total payment commitment does not fall but is simply deferred.

     Mr. Richie Boucher: The primary purpose is to try to match the cash on a month to month and year to year basis with the cashflow of the customer.

     Deputy Stephen S. Donnelly: Earlier  somebody asked why Bank of Ireland has 81 split mortgages compared to  Permanent TSB's 3,955 and Mr. Mason said the split mortgage is not  affordable for many of the bank's customers.  If the bank takes  somebody's mortgage at 2.25%, split the two pieces of capital in half  and charge the same interest on both, there is no financial change for  the customer.  It is unaffordable because Bank of Ireland's split  mortgage is completely meaningless.

     Mr. Stephen Mason: Our  split mortgage is fully consistent with that recommended in the Keane  report.  Interest is charged on both sides but the customer pays capital  on only one side, so the monthly payment is reduced-----

     Deputy Stephen S. Donnelly: In the short term, but the full amount of capital is accruing a full amount of interest.

     Mr. Stephen Mason: -----for the life of the mortgage and there is a warehoused amount that must be dealt with at the end.

     Chairman:  Is there a variation on the variable interest rate?  Mr. Boucher referred to a set rate for tracker mortgages.

     Mr. Richie Boucher: After  the committee's suggestion I consulted with my colleagues and  considered it, and we capped it at the three-year unsecured cost of  money to the bank at the time, which is 2.5%.


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## ClubMan (16 Apr 2014)

Thanks Brendan - but this extract is confusing and contradictory. 


Brendan Burgess said:


> Mr. Stephen Mason: Again,  it goes with the original contract so if the customer was on a tracker  or variable rate, that would be the rate charged on the warehoused  portion.
> 
> ...
> 
> ...



Three times it's stated that the warehoused rate is the normal mortgage tracker or SVR rate and once at the end it's stated that it's (capped at) 2.5%. 
Seems to me that we're none the wiser... or am I missing something here...?!
Or is it the case that the warehoused rate is 2.5% or the "normal" mortgage tracker or variable rate - *whichever is lower*?
If so why couldn't somebody say that more clearly?


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## Brendan Burgess (16 Apr 2014)

Hi ClubMan 

Stephen Mason said one thing in part one which says that the variable rate is charged on the warehoused portion. 

The second bit relates to trackers only.

The third bit is the most relevant and reliable 

1) It was a direct question from the Chairman "Is there a variation on the variable rate?" 

2) Richie Boucher gives a definitive and unconditional answer to a definitive question. 

The last time we were here you asked us to reduce it
We considered it
We capped it

I really don't think you need any more than that to back up your argument.

I watched it live and it was clear to me. 

You can watch it here if you are still not convinced 

http://www.youtube.com/watch?v=mXwRgi5lfFU&feature=youtu.be


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## ClubMan (16 Apr 2014)

OK - thanks.
I am anticipating - if it comes to it - haggling on a friend's behalf with BoI for 2.5% on the warehoused portion of a split so anything to back such an argument up is helpful!


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## Brendan Burgess (13 May 2014)

Hi ClubMan 

I spoke to some arrears people in Bank of Ireland yesterday and you are absolutely right. 

This statement from them is exactly and literally the position: 

"Following consideration we have made a decision that for *default   *owner-occupier customers on a non-tracker variable rate the split   mortgage rate for the warehoused portion will be fixed at 2.5% per annum   for a period of three years, assessed on a case-by-case basis; 2.5%   being the rate at which the bank can currently borrow three year   unsecured funds in the market," 

If a customer in default is given a split mortgage, the interest rate will be 2.5% on the warehouse.

If a customer who is not in default is given a split mortgage, they will continue to pay the SVR on the warehouse. 



Brendan


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## ClubMan (13 May 2014)

As I said the wording is clumsy and not clear.
I don't know why they couldn't have phrased it more simply and maybe even summarised the criteria that apply.
As I said when I spoke to somebody in BoI they would not tell me what the criteria were.
Somebody in arrears is presumably in default but is somebody who might have missed a few repayments but then made them up and not have any arrears? Somebody restructured on, say, partial repayments, interest only, deferred interest?


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## Bronte (13 May 2014)

Well Clubman if the arrears is the criteria maybe your friend needs to miss a few payments?


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## Brendan Burgess (13 May 2014)

Bronte said:


> Well Clubman if the arrears is the criteria maybe your friend needs to miss a few payments?



I wondered about this myself. 

To be offered a split mortgage, a borrower must show that they can meet the repayments. If they can't meet the repayments, the mortgage will be categorised as unsustainable. 

I think it's risky to intentionally miss a few payments. You might get a reduced interest rate on your split mortgage, or you might just get categorised as unsustainable. 

I will suggest to BoI to change this policy as it could act as a disincentive. 

Brendan


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## Bronte (13 May 2014)

Brendan Burgess said:


> To be offered a split mortgage, a borrower must show that they can meet the repayments. If they can't meet the repayments, the mortgage will be categorised as unsustainable.
> 
> I think it's risky to intentionally miss a few payments. You might get a reduced interest rate on your split mortgage, or you might just get categorised as unsustainable.


 
Clubman's friend presumably doesn't have time to wait for BofI to change policy.  It's actually terrible that one would even have to suggest missing a few payments as a solution, but this is where we are in the Ireland of 2014.  

What is the real risk of missing a payment or two, they surely wouldn't categorise him as unsustainable for that.  How about a couple of below repayment amounts, make half a payment, make a full payment, make a 3/4 payment.  Then he'd be in arrears but by a negligible amount, not an unsustainable amount.  

The sad truth is that anybody who makes full payments aren't going to get help.


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## ashambles (13 May 2014)

I think this is dangerous advice, an attempt to strategically default in this way will be obvious, and you'd face questions such as why did you suddenly need to spend 1k extra a month prior to wrangling for a split mortgage. 

What it will do is make it harder for BOI to give out split mortgages and I'd guess BOI is looking for excuses to not give out split mortgages. BOI is getting surprisingly close to operating like a normal bank and a normal bank cannot have incentives for its customers to not repay their loans.


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## ClubMan (13 May 2014)

My friend's mortgage has already been deemed unsustainable by BoI and they have asked for it to be sold - no arrears and no missed repayments. Admittedly restructured on interest only and then deferred interest for the past few years. Bottom line is that repayments of c. €1K are realistic but this is short of the full capital + interest repayment (on outstanding capital balance + now capitalised deferred interest) of c. €1350 at the current variable rate of interest. There are other extenuating circumstances causing pressure. I can't go into detail about these or the wider case here right now. Anyway an appeal letter has gone in presenting these details (plus SFS etc.). The Phoenix Project in Portlaoise were very helpful in advising on how to draft the letter. I thought I did a good job on drafting it myself  but they (and a few others) suggested some useful refinements.

BTW - in this case (and maybe many others?) the LTV is > 100% but reducing due to market movement. Ironically this could put the borrower in a worse position as it becomes more attractive to a lender to force the sale or repossess. I'd imagine that this LTV conundrum (paradox?) has been discussed elsewhere but I'm just not up to speed on AAM threads these days.

It's difficult to reassure somebody in this position but my understanding is that if my friend makes repayments of c. €1K - even if BoI don't engage and offer medium/long term restructuring - then it would be very unlikely for them to be able to force a sale or repossess.


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## ClubMan (13 May 2014)

ashambles said:


> a normal bank cannot have incentives for its customers to not repay their loans.


But BoI are doing exactly that by rewarding those in arrears with a lower warehouse rate than those who are not in arrears! 

Not that I am suggesting that any sort of strategic default by deliberately missing repayments is a good idea either.


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## ClubMan (13 May 2014)

Brendan Burgess said:


> I will suggest to BoI to change this policy as it could act as a disincentive.


Can you clarify what you would suggest to them here?
Don't restrict 2.5% warehoused rate to only those in arrears?
Don't offer a lower rate on the warehoused portion to anybody?
Something else?


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