AIB to write off debt for some homeowners in arrears

AIB is set to write off debt immediately for homeowners in arrears who are deemed eligible for a new split mortgage product.

Under the plan disclosed last night, a customer deemed eligible for a split mortgage will have the loan broken into two tranches. The first part, which the customer will be expected to repay, will be based on the current market value of their home, while the other will be warehoused, interest free, for settlement at a later date.

For example, if someone owes €300,000 but the current value of their property is assessed at €200,000, that €200,000 figure becomes the first tranche, the balance of €100,000 parked for repayment.

It is understood that AIB will, in addition, write off up to 20 per cent of the first tranche.

That means up to €40,000 of the €200,000 in the example above will be written off by the bank immediately – leaving troubled homeowners servicing a mortgage of €160,000, nearly half the €300,000 outstanding.

Those who meet the terms of the new mortgage payments for the first five years will also receive a 5 per cent write off on the balance.

If they continue to meet the terms of the loan for another five years, they will be given a 5 per cent write off on the warehoused portion of the loan.

Repaid
If the owner comes into extra money, they will be given extra write-offs for sums set against the warehoused portion of the loan. In the first five years of the new arrangement, the write-off would amount to €3,000 for every €7,000 repaid off the warehoused €100,000. Between five and 10 years, the discount would be €2,000 off every €8,000 paid back. The move is designed to incentivise early repayment.

It is understood that up to 1,100 customers with split mortgage applications currently in the system will be eligible for this new arrangement, in addition to those who have already signed up to a split mortgage with AIB – a number thought to be in the hundreds. Informed sources said the first two customers could be signed up to the new product as early as this week.

AIB is calling the write-offs a “partial compromise of principle debt” and a “right-sizing of the loan”.