Banks urge Coalition to put €1m cap on debt write-offs

THE BANKING industry has urged the Government to limit the mortgage debt eligible to be written off in out-of-court debt settlements at €1 million, fearing that the proposed €3 million limit would include too much property investment debt.

The group representing mortgage lenders has lobbied Governments officials to reduce the debt cap to €1 million for individuals applying for personal insolvency arrangements to prevent too many buy-to-let mortgages and property investors being included.

The Irish Mortgage Council, an affiliate of the Irish Banking Federation, wants the proposals to be changed before the publication of the draft legislation at the end of the month.

Proposals made by the Government will allow individuals who cannot pay their debts to reach an out-of-court agreement to reduce their mortgage debts so they become solvent over a period of six years.

The arrangements allow for the inclusion of buy-to-let mortgages deals and covers debts ranging from €20,001 to €3 million.

Agreement must be reached with at least 75 per cent of the secured creditors or mortgage lenders before any debt can be written off.

The industry has argued in representations for another option that would limit debt write-offs to mortgages linked to family homes or similar arrangements where the debt on the family home would be treated separately from other mortgage or unsecured debts.

The group claims a €1 million cap would cover 90 per cent of mortgages on family homes. A cap would also avoid the inclusion of more complex buy-to-let mortgages and personal guarantees associated with property investments, the group has said.

The Department of Finance and the Department of Justice said they had received more than 30 representations so far relating to the personal insolvency proposals.

The banking industry had originally lobbied against mortgage or secured debt being included in the out-of-court insolvency arrangements ahead of publication of the draft proposals last January.

The industry has also called for the new personal insolvency trustees who will propose write-off deals to creditors and administer the arrangements to be accountants and solicitors, and that they in turn be regulated by the Central Bank.

No other country includes mortgage debt in non-judicial debt settlements for insolvent individuals.

Ulster Bank has told the Department of Finance the proposals could increase the cost and limit the availability of finance to lenders who use mortgage debt to borrow to fund their operations.

Ratings agency Moody’s has said a quarter of all Irish mortgage debt could be written down under the insolvency proposals, a claim disputed by the department.

Karl Deeter of Irish Mortgage Brokers claimed earlier this week that up to a quarter of mortgage holders in arrears could be deliberately delaying their payments to try to win concessions.