The Irish Times view on pandemic-related mortgage payment breaks

There is a cost. Who should pay? Borrowers? Other customers? Or taxpayers who continue to hold large stakes in the main banks?

The industry in March committed, following talks with Minister for Finance Paschal Donohoe, to three-month payment breaks on household and business loans. Photograph: The Irish Times

The industry in March committed, following talks with Minister for Finance Paschal Donohoe, to three-month payment breaks on household and business loans. Photograph: The Irish Times

 

The Republic’s retail banks, bailed out by taxpayers and overseas parents following the property crash, seemed determined to have a good Covid-19 crisis.

While the industry in March committed, following talks with Minister for Finance Paschal Donohoe, to three-month payment breaks on household and business loans, in reality, most had already earlier promised they would offer payment pauses. It was seen as a win-win for the banks. Being among the first in Europe to offer such relief would go a long way to restoring trust in an industry still – rightly – scarred by the legacy of the Celtic Tiger years and tracker mortgage scandal. But it also avoided an immediate fresh arrears spike as the country headed into lockdown.

There were teething problems. There were anecdotal reports of front-line bank officials in the early days not on message that this was not a standard moratorium, requiring proof of employment and information on savings. The breaks were essentially to be offered to anyone reporting financial difficulties as a result of Covid-19.

When banks set up the payment breaks, they were keen to ensure they would not affect borrowers’ credit ratings or how the loans were accounted for on their books. To do this, they looked to 2014 EU banking rules providing that if interest isn’t being accrued on a loan, it is taken as a borrower’s unlikeliness to pay – tipping them into default territory. So the banks decided to continue to apply interest. European regulators clarified this week that special Covid-19 payment breaks allow for the accrual or non-accrual of interest, without triggering default. However, the main banks have said that they will continue to apply interest.

Goodbody Stockbrokers estimates banks would lose €150 million if they waived interest on 70,000 mortgages subject to payment breaks for six months. And price comparison website Bonkers.ie says that applying interest would add €4,300 to a €300,000 mortgage with 30 years to go. Either way, there is a cost. Who should pay? Borrowers ? Other customers? Or taxpayers, who continue to hold large stakes in the main banks?

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.