Q&A: Where do we stand on mortgage holidays and payment breaks?

Customers advised to contact lenders if in financial distress

So what is available for customers struggling to repay their mortgage? Photograph: iStock

So what is available for customers struggling to repay their mortgage? Photograph: iStock

 

As the Covid-19 crisis deepens across the world, many are concerned about how they’ll continue paying outgoings when the money coming in the door is drying up for some while others are largely dependent on State support.

So what is available for customers struggling to repay their mortgages? Well, the Banking and Payment Federation of Ireland (BPFI) has set out how its members - including retail banks AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank - are looking after their customers.

Payment breaks

Customers can avail of a payment break for up to three months both for personal and business banking. After this, banks will engage in ongoing reviews depending on the scale and extent of the pandemic.

What sort of breaks can I avail of?

One option is a moratorium payment break, whereby a person’s full loan repayment is postponed for an agreed period of time. At the end of this period, loans return to full capital and interest payments. Crucially, at the end of the agreed period, the person’s loan repayments will increase so that the loan is fully repaid within the original term. So this option doesn’t tag on an extra three months at the end, it just spreads the burden evenly on your remaining repayments.

Another option is an interest only payment whereby you only pay the interest due on the loan during the agreed payment break. As you’re not paying any capital, your repayments will be less during the period but, clearly, your loan balance won’t reduce during the period. And as with a moratorium, this will spread the burden of your capital repayments throughout the remaining loan repayments.

So, for example, if you have 10 years remaining on a mortgage with a €100,000 balance at an interest rate of 3 per cent, your current repayment would be at €965 per month. After a three month moratorium, that would rise to €994. If you had all the same terms but there is 25 years on your mortgage, your current repayment would be €474 while your payment after a three month moratorium would be €481.

Will a payment break affect my credit record?

The Central Bank of Ireland has confirmed there will be no impact to a person’s credit record if they avail of a payment break as a result of being financially impacted by Covid-19.

Am I eligible for a payment break if my existing loan is in arrears?

This is a gray area. The BPFI says its lenders are committed to supporting all borrowers including those who are already financially distressed. But there’s no clear answer on whether those customers will automatically be entitled to a Covid-19 related moratorium. As such, the lobby group suggests that you contact your lender to establish the best approach to take.

How do I apply for a payment break?

Firstly, the BPFI recommends that only those customers that actually require a payment break should good one. If you don’t have to, don’t build up debt unnecessarily, it says.

And even if you are in some financial distress, you don’t have to take a three month moratorium if you don’t need to.

So, to organise a break if indeed you need one, the BPFI suggests that you contact your lender but be patient because all of the banks are dealing with a considerable increase in queries at this time.

“Please understand that staff at all lenders are themselves working in very challenging circumstances and are doing their best to deal with all customer cases as quickly and efficiently as possible,” the BPFI says.