Key Post How to analyse an offer of a split mortgage

Very good point baby blues.

What if, after entering a 'split mortgage' agreement, and the repayments on the active part of the loan become unsustainable, due to increasing interest rates, loss of earnings etc.?

Is the lender then going to veto the PIA route, stating they had already offered the borrower/s a generous agreement?

The lenders really have the upper hand with the option to agree or disagree with a PIA process. I hope if the borrower/s genuinely cannot repay the restructured/split mortgage, that a PIA is still a valid option.

It will be important for lenders to look forward, not back. If a voluntary agreement breaks down, the lender will possibly be faced with accepting or rejecting a PIA. Lenders must recognise that rejecting the PIA proposal will not resuscitate the former agreement. Rather, rejection will most likely lead to bankruptcy and the returns in bankruptcy will ordinarily be significantly less than in a PIA. There's no going back ...

Brendan

I am not aware of any public statements by the banks on the issue of whether they will fully engage in PIAs/DSAs. However, in ordinary meetings with us, and also with other PIPs, they have been quite candid in their views.

The fact of the matter is that the PIA/DSA process can be costly, inflexible and cumbersome. If I was a banker, my own preference would be to deal directly with the borrower, so that I could avoid the costs of a PIP and have much more flexibility to deal with variations in income etc.

Having said the above, many of the banks are now negotiating debt forgiveness deals directly with borrowers outside the PIA/DSA process. These deals are being done in genuine cases where the level of debt is absolutely unsustainable. Accordingly, there is still a key role for a professional advisor: advising the borrower on how to negotiate with the bank.

In practice, I believe that the only scenarios suitable for PIAs/DSAs are borrowers who are multi-banked.

Jim Stafford

Hi Brendan,
I put up a post last night, re; split Mortgage offer from PTSB, it states that if payment capacity improves, PTSB may move a portion of funds from the warehouse account to the main mortgage account or they may increase our partial capital and Interest payment on main Mortgage;

Hi Jim

I haven't come across any writing down of debt for home loans while leaving people in their homes. They will occasionally write off debt after the home has been sold.

Have you come across this?

Brendan

Brendan,

I was half-istening to the RTE radio news at lunch-time and I think I heard a statement that BoI is the only bank not offering 0% interest on the warehoused / parked portion of a mortgage in arrears. If this is true then surely it means that reaching a sustainable arrangement with BoI is next to impossible as the interest clock is still running, leaving an enormous debt when the active portion is paid down.

Hi mathepac

A split mortgage where they charge the ordinary interest on the warehouse is a bit meaningless.

However, it is still very valuable.

I am looking at an offer for a BoI borrower on a cheap tracker. They could repossess and recover most of their money, but they have effectively extended the mortgage.

On a SVR mortgage, it's less valuable, but it's probably better than being repossessed. I might write a Key Post on it.

I hope BOI expect the split mortgage owners to pay the interest on the warehoused on an ongoing basis, rather than building up interest on the warehoused section.

Boucher made a point that much of the problem loans are on tracker rates. For tracker mortgage owners generally it's the capital part they're struggling with rather than the interest, and avoiding half of the capital repayments is significant.

I hope other banks with warehoused debt at 0% are accounting for both the lack of return and the uncertainty over what happens in 20 years.

I get the feeling some commentators see split mortgages as being both zero cost to banks, and something that will be written off for mortgage owners once they repay the original loan.

Brendan ,
Looking at the factors in favor of selling v Split mortgage ,I would conform to many of the factors on the selling side ,I would imagine however that a big issue would be getting a loan to buy another house in the long term future if one wanted to do so ?

Yes, if you sell your home and get the shortfall written off, you will not be able to get credit for a long time to come.

Brendan

Apologies for resurrecting an old thread but...

ashambles said:

I hope BOI expect the split mortgage owners to pay the interest on the warehoused on an ongoing basis, rather than building up interest on the warehoused section.

Click to expand...

They do.
Capital + interest repayments on the non warehoused part of the split PLUS
Interest only repayments on the warehoused part of the split.
They also require some evidence of ability to repay the warehoused capital at the end of the term/at retirement - e.g. pension lump sum etc. Maybe this is a Central Bank requirement?

Hi Brendan,
Could you explain a bit more the advantage of a split mortgage option whereby the mortgage has a guarantor?
Do you know if KBC bank allow the parked amount to be 'interest free'?
Finally, is a 'guarantor' also deemed a 'borrower' on the mortgage?