Q&A Dominic Coyle

I currently have a variable rate mortgage with Danske Bank on an investment property. Rates on these mortgages are rising to over 5 per cent in July. My question is, do you think they will rise further than this ?

A friend who recently got approval for a mortgage said the bank he went to stress- tested repayments on rates over 6 per cent and I am concerned that Danske will be at this level at some future date, in which case now is the time to fix the rate.

Mr DO’H, Dublin

If they can, they will. Danske, like all the mainstream banks, are struggling to make money on their mortgage book. Danske, or National Irish Bank as it was, may not have been as adversely affected by tracker mortgages as some of its peers but, by Danish standards, the recklessness of lending at the Irish operation puts it in the same sphere are the old Bank of Scotland Ireland.

Management at headquarters is under huge pressure and there will be little sympathy there for hard-pressed borrowers with mortgages on investment properties.

And, looking around, 5 per cent on investment mortgage variable rates is not the highest rate available in the Irish market.

While banks cannot touch tracker mortgages – at least not until the new code of conduct on mortgage arrears is announced later this week – they are forced to look elsewhere to pad their margins. The first port of call is the variable rate. The margin on these has been rising consistently in recent years, both by banks failing to pass on the limited decrease in ECB rates to historic lows and the arbitrary rising of rates.

With banks still struggling to make money on their mortgage books, there is nothing to suggest the rates are likely to fall further. Could they rise to 6 per cent? Certainly, especially if economies improve and the ECB starts raising rates again.

As Danske gives you no loan-to-value discount for low ratios on investment mortgages, your only option is to fix. Certainly, if you are finding the latest rate rise alarming, it might be time to look at what fixed rates might offer in terms of peace of mind and longer-term planning – especially as you are going to find it difficult to get another lender to take on an investment mortgage in the current scenario.

However, Danske’s fixed rates for investors are currently between 5.11 per cent (two-year) and 5.55 per cent (five year), so they’re not giving them away.

Struggling
with credit
union debt
I wrote to you last October concerning our credit union loan of almost €50,000, where we had to agree to pay €70 a week out of €372. We have struggled to pay this, but the time has come again to try and get this amount down to maybe €25 a week. I know they won't agree. We are stone broke and our marriage is under threat with all this worry.

Is there any page I can go to to see how people who were taken to court by credit unions got on and what the outcome was? We need good help and advice that won’t cost us anything as we can’t pay anyone. I really don’t understand insolvency/bankrupty or how some can get loans written off.

Mr JM, Tipperary

I do remember your letter last year, not least because of the difficulty of your position – compounded as it is by the fact that your relationship with the Money Advice and Budgeting Service (Mabs) has broken down over your view that it is on the side of the credit unions.

While it is certainly true that Mabs and the credit unions do work closely together in many cases, there are thousands of credit union customers under pressure on their borrowings and it is hard to believe that anyone at Mabs – which is very much the place to go for people in your position – would be so blinded by their work with the credit unions and act in anything other than your best interests.

Like everyone else, Mabs knows that there are good credit union managements and weaker credit union managements – that’s part of the reason so many credit unions have got themselves in trouble with loose lending and bending their own rules.

Is there a page where all the details of how customers have fared in court, should they be taken there by their credit union? No there isn’t. Stubbs Gazette has made a fist of estimating the numbers but it has been reported that the Courts Service will not give it details of many of the outcomes of such proceedings.

The limited data that is available points to credit unions becoming more aggressive in pursuing debts through the courts – the year-on-year increase in cases is significant.

However, I think you need to focus on your own position rather than worry about the general trend. I don’t know what other assets you do or don’t have – for instance whether you own your home.

However, if a deal struck last October is already unravelling and you are now looking to pay roughly a third of the weekly amount agreed then, you are clearly in serious trouble. Your payments are unlikely even to meet the annual interest bill on your loan.

In the current climate, I would not be surprised if your credit union were to take you to court – but given the worry and stress you are under, there could be worse outcomes.

The credit union could seek judgment. Either at that point, if you are an active party to the proceedings, or later, they could look for an instalment order, under which the courts would determine how much you should pay each week.

The really important thing is that you do not ignore any court summons. If you turn up, you can argue your case. Equally important is that you prepare a detailed statement of your income (€372) and your outgoings on food, rent, utility bills, clothing etc – basically you need to account for every penny you spend.

This is called a statement of means and, if you're not going to talk to Mabs, I strongly suggest you approach the Free Legal Advice Centres – of which there are four in Tipperary (flac.ie) – to get advice on how to do this and how to file it to the court when required. While you are not entitled to legal aid, Flac will give you general legal advice in the area which will be very useful for those, like you, who are unfamiliar with the system.

Judges are not there to impose the impossible. If you attend, and present a full and accurate statement of means which shows you can afford no more than €25 a week, it is quite possible that that is what the court will impose in an instalment order. You need to be realistic. Don’t promise money you can’t pay – and don’t hide assets you think the court does not need to know about.

The advantage of an instalment order is that both you and the credit union will have to abide by it. Will it affect your credit record? Yes. But then no-one is going to lend you money in your current position anyhow. It’s all about getting this monkey off your back.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com