Covid mortgage payment breaks may be extended to six months

Borrowers who have been hit financially by Covid-19 could be offered a six-month break on their mortgage payments if talks between the banks' lobbying body and the Central Bank of Ireland are successful.

At present, customers who have been negatively affected by the pandemic can apply to their lenders for a three-month break in payments, without being classified as in arrears. To date some 45,000 payment breaks have been agreed between lenders and borrowers, amounting to about 5 per cent of all home loans in the market.

In some EU member states, banks offered a six-month payment break as a first measure, which is permitted in guidelines published by the European Banking Authority.

Brian Hayes, chief executive of the Banking & Payments Federation Ireland, confirmed that his body was now in talks with the Central Bank about doubling the time frame here, taking it to the end of the summer.

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“There is an expectation, because this has happened in other EU countries, that the potential for a six-month break may well apply,” Mr Hayes told Inside Business, a podcast from The Irish Times. “We’re in discussions right now ... with the Central Bank of Ireland and with the industry to see how that might work because if you don’t pay for six months, that’s a pretty large amount of money that you owe over the term of the mortgage.

“We’ve always made it clear that this is not a moratorium, it’s not a holiday, it’s simply a payment break, which we can provide for under the existing codes and under the EBA [rules].

“We don’t really know how big of an issue this will become but there are real costs for the banks in this because over a three-month or potentially six-month period we won’t be able to obtain mortgage payments from people and there’s a cost for the banks in the here and now.”

‘Utterly unfair’

Given the unprecedented nature of the economic lockdown, Mr Hayes said it would be “utterly unfair” for a borrower to be deemed to be in default with their mortgage after their three-month payment break had expired, noting that it would have implications for a borrower’s credit rating and would also impose additional capital requirements on banks because the loans would be classified as non-performing.

“We’ve got to work through with our regulator how this might work,” he said, adding that the Central Bank had to date taken a “pragmatic view” of the implications for both lenders and borrowers.

“We’ll see the outcome of that. Some people won’t get through this, and that’s the reality we have to face. Inevitably it will lead to more non-performing loans, but we’ve got to make sure that we minimise that in terms of the regulatory treatment and especially try to get those people back on their feet again. We are going to have to work with customers on a case-by-case basis.”