Mortgages into 80s could resolve debt issues, insolvency service says

Extending people’s mortgage payments into their 80s and 90s might help 95,000 people who still owe a lump sum at the end of their mortgage term, the State’s insolvency agency has said.

There are almost 30,000 people in long-term mortgage arrears who have missed mortgage repayments for more than a year, but there are a further 95,000 people – representing about 13 per cent of all home mortgages and €14.5 billion of debt – that are facing a shortfall in repaying the balance at the end of the mortgage term.

This group includes many people who borrowed heavily during the economic boom and may subsequently have restructured unaffordable mortgages but are now in their late 50s, 60s and 70s and approaching retirement with no means of repaying the outstanding sums of money.

Michael McNaughton, the director of the Insolvency Service of Ireland – the State body that helps return insolvent people to solvency – said recent court cases extending monthly mortgage repayments and reducing them for people in or approaching retirement into their 80s or 90s might be a way of solving this large amount of unsustainable mortgage debt.

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Last week the Circuit Court overruled an objection from a bank permitting an indebted 68-year-old Waterford handyman to stay in his home for life on reduced repayments of €93 a month with the outstanding €97,000 mortgage to be repaid from the sale of his home after his death.

‘Complementary solution’

Mr McNaughton said the State’s mortgage-to-rent scheme – where a borrower switches from owning their home to renting it as a social housing tenant – was one solution that could help but was “quite restrictive”. Therefore, extending mortgage repayments in someone’s 80s or 90s was “a complementary solution” to the State-backed scheme and a “viable alternative” to repossession.

“These kinds of solutions are aimed first of all at 25,000 people who are in arrears and in arrears of more than two years,” he said.

“But I think also it could be a way forward for older borrowers who might not technically be in arrears but they have no way of paying off the mortgage within their working lives.”

Some borrowers are facing shortfalls from interest-only arrangements. Where loans were restructured because they could not afford their repayments, some face the full repayment of a lump sum that was “warehoused” in the years after the property crash to be paid at a later date.

“There are a lot of mortgages that have been restructured but they are not necessarily sustainable,” said Mr McNaughton.

The Central Bank has urged lenders and borrowers to engage with each other on making plans to deal with lump-sum payment due at the end of the mortgage terms and to start clearing down the "warehoused" part of the debt if the borrower can before the end of the term.

Mr McNaughton said investment funds that bought distressed mortgages from the banks had been engaging more with borrowers than some banks and agreeing to “innovative solutions”.

Long-term repayment arrangements can create income for the funds from these distressed loans and allow them to sell tranches of similar loans on in securitisation deals, he said.

Non-bank entities such as Start Mortgage and Pepper Ireland held 54 per cent of all home mortgages in arrears of more than one year at the end of March.