The Government has approved new measures to help people who are struggling to pay their mortgages but banks will still be able to take court action against anyone who is more than 12 months behind with their home-loan payments.
A new five-step system allowing homeowners with mortgage arrears to agree new repayment terms with banks and building societies is to be established in line with the recommendations of a Government-appointed advisory group on personal debt.
However, the group’s report, published yesterday, says a moratorium forcing the banks to wait for one year before taking legal action against people in arrears should not be extended further as this may discourage borrowers in difficulty from facing up to their problems.
The banks agreed to the waiting period last year as part of a code of conduct on mortgage arrears. The report says lenders are not taking court action against anyone who has approached them in an effort to tackle their arrears problems.
Confirming that the Government had approved the recommendations of the Mortgage Arrears and Personal Debt Expert Group, Taoiseach Brian Cowen said: “Most of these recommendations can be implemented in the short term and the Financial Regulator has agreed, where possible, to implement them without delay.”
He added that all banks and building societies would be obliged to have a mortgage arrears resolution process what would ensure consistent treatment of borrowers in difficulty.
The report also recommends that the Government overhaul the State’s existing mortgage interest support scheme, designed to help homeowners in financial trouble.
The banks will not be allowed to charge those who take part in the resolution process extra interest or penalties, nor will they be allowed to change the terms of low-interest tracker mortgages to increase repayments.
The five-step resolution process begins when either the borrower or the bank communicates with the other party about a problem mortgage. The report stresses that anyone who fears that they are at risk of falling behind on their payments should approach their bank or building society.
Once the process is under way, the borrower must provide all relevant financial information to the bank. At the third stage, this is assessed and a resolution, which could involve cutting the repayment amounts or switching to an interest-only mortgage, is agreed as a fourth step.
The final stage allows borrowers who do not agree with the resolution to appeal to the Financial Services Ombudsman.
Banks will be required to put a formal arrears resolution process in place and establish a specialist unit to deal with those in arrears, which, among other things, will have to tell customers where they can get independent advice.
The Financial Regulator’s office said it would immediately begin considering changes to its code of conduct on mortgage arrears that the group recommended.
Financial Regulator Matthew Elderfield was a member of the group, which accountant Hugh Cooney of KPMG chaired. Pat Farrell of the Irish Bankers Federation was a member, along with a number of senior civil servants. The federation said yesterday it supported the recommendations. It described the standardised approach to the issue as “welcome development”.
The Money Advice and Budgeting Service (Mabs) website, keepyour home.ie, will act as the first online point of contract for consumers and will provide links to other relevant sites. The group recommends increasing the State support given to Mabs.
Labour’s housing spokesman Ciarán Lynch TD said the report was “long on aspiration and short on detail” and described it as a very disappointing document.
A second report in September will deal with negative equity and debt forgiveness.