1,000 bank customers in arrears get loan cuts

About 1,000 Ulster Bank customers who are in arrears with their mortgage repayments have had the interest rate on their home loans reduced to as low as 0.5 per cent in an attempt to help them pay them back.

Ulster Bank chief executive Jim Brown has confirmed this so-called "economic concession" treatment is being offered for periods of five to seven years or "could even be for the lifetime of the loan depending on a customer's circumstances".

The UK-owned bank said this treatment is proving more helpful to arrears customers than split mortgages, which involves at least half of the loan being repaid at the full interest rate and the balance warehoused, interest-free, to be paid back at a later date.

Ulster Bank has modelled the two options and found that lowering the interest rate on the whole of the loan reduces the repayment burden for the borrower. It said the overall cost of a split mortgage would ultimately be higher over the lifetime of the loan.

The potential savings on interest payments will vary for Ulster Bank customers in arrears who opt for this new arrangement. Around 71 per cent of Ulster Bank’s mortgages are trackers pegged to the European Central Bank’s rate. These customers are paying 1.5 to 2 per cent on their home loans. Those on standard variable rates are paying between 4 and 4.5 per cent.

Mr Brown gave details of the move at a joint Oireachtas committee on finance yesterday. The committee also heard from Bank of Ireland chief executive Richie Boucher.

The two banks offered different views on the possibility of writedowns or write offs for mortgage customers in distress with their loans.

Mr Brown said Ulster Bank would write off a portion of a loan in the case of a voluntary surrender or repossession but only after it had “exhausted all avenues for recovery”.

Mr Boucher reiterated Bank of Ireland’s hardline stance that mortgages must be repaid in full while stressing that it would do all it could to help customers restructure their loans. “Every forbearance costs us money,” he said. “We look to maximise recovery.”

He added that the cost of any writedowns or write offs would have to be borne by shareholders, including the State, which owns 15 per cent of the bank. “The money has to come from somewhere.”

Mr Brown said 35 per cent of its 18,025 mortgage accounts in arrears of 90 days or more are “not engaging with the bank and are not paying anything” on their loans. Separately the bank threatened legal action against 4,124 mortage arrears customers in the second quarter of this year, of which 20 per cent have since “re-engaged” with the bank.

He said it was not sustainable or acceptable for people to continue to live in a house for free.

AIB told the committee on Tuesday that it believes about 20 per cent of those in arrears were strategic defaulters. Mr Boucher declined to quantify this for Bank of Ireland. "It's hard to know how one would define a strategic default. We don't have a definition."

Mr Boucher faced a four-hour grilling from the committee, which involved a number of testy exchanges with members.

Sinn Fein TD Pearse Doherty accused Mr Boucher and his colleagues of “playing the committee for fools” in the way they were presenting their information on arrears.

The committee wanted information on Bank of Ireland’s progress in meeting the target set by the Central Bank of Ireland to provide 20 per cent of their arrears customers with sustainable solutions by the end of the second quarter of this year.

Bank of Ireland provided figures for the first half of the year and for July but did not break out data for the second quarter.

Fine Gael TD Kieran O’Donnell said it was “like being in a maze, we are chasing you around the place”.

Mr Boucher rejected these assertions. “I’m trying to give as much information as I possibly can to give colour to the numbers,” he added.