Borrowers urged to work with banks as payment breaks end

Homeowners and other borrowers who availed of loan payment breaks of up to six months during the Covid-19 crisis are being urged to engage with their lender to find longer-term solutions as the relief period comes to an end in the coming weeks.

Some 86,000 mortgage accounts have been granted payment breaks by lenders since mid-March, with 43,000 still subject to relief as of August 21st, after many borrowers returned to regular payments after an initial three months, according to Banking & Payments Federation Ireland.

The federation has begun an extensive advertising campaign this week encouraging borrowers coming off payment breaks to engage with their lenders and work on options available to them. A new website, paymentbreak.ie, containing a guide answering frequently asked questions is at the centre of the information campaign.

Borrowers who have not availed of payment breaks to date have until the end of September to apply for up to six months of relief being offered to households and businesses affected by the Covid-19 economic shock.

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“The guide emphasises to customers that lenders have expert staff who specialise in the area of mortgages and mortgage arrears, and they will be there to help people talk through their personal case and together consider the options that are most appropriate for them,” the federation said.

“While banks appreciate that many customers may be in a position where they are able to return to full repayments on their mortgage, they also say in the guide that they understand that some customers may still be financially impacted and will be fully supported through what happens next, and how to manage their mortgage repayment issues.”

Provisions

The guide also includes a step-by-step explanation of the Mortgage Arrears Resolution Process, which lenders must follow, and will be helpful to borrowers who are planning their next steps as they exit their payment break.

The State's five retail banks – including overseas-owned Ulster Bank and KBC Bank Ireland – set aside a combined €2.6 billion of provisions in the first half of this year to absorb an expected surge in bad loan losses as a result of the economic shock caused by the pandemic.

Guidance from the sector suggests that the five lenders will end up taking as much as €3.6 billion of impairment charges for 2020 as a whole.

Although there has been speculation in recent weeks that banks may offer an extension to payment breaks for particularly vulnerable business sectors, such as pubs that have remained closed since March, this would need approval from European regulators and there appears to be little traction.

"The approach of the expiry of payment break terms was always going to generate some speculation on 'Will they or won't they be extended?' " said Eamonn Hughes, an analyst with Goodbody Stockbrokers. "Our base case was always 'No extension'."