My Indo article: Any help for mortgage holders should be for those who really need it.

[Brendan Burgess]

I have an article in today's Indo.

Brendan Burgess: Any help to mortgage holders in the Budget should be focused on those who really need it

There have been calls by politicians for the introduction of tax relief for mortgage holders to help them cope with recent interest rate increases. This tax relief would be paid whether or not the borrower was in arrears.

www.independent.ie

Any help to mortgage holders in the Budget should be focused on those who really need it



There have been calls by politicians for the introduction tax relief for mortgage holders to help them cope with the recent increases in interest rates. This tax relief would be paid whether or not the borrower was in arrears.

This is misguided. Despite the increases in mortgage rates, most mortgage holders are not struggling. Customers of the main banks are paying an average mortgage rate of about 4.5%. That is higher than it was 18 months ago, but it’s not particularly high by historical standards. It is still much cheaper to pay a mortgage than to rent an equivalent home.

Anyone who bought their home in recent years, must have been on a higher-than-average income in the first place to get a mortgage. They also managed to save up a deposit of at least €30,000. Homeowners, even with expensive mortgages, are the better off in society, so why should the general taxpayer, many of whom are renters, be asked to subsidise them? It makes no sense.

However, there are two groups of mortgage holders who do need action from the government – customers of vulture funds and customers of the mainstream banks who can’t meet their mortgage repayments.

Taking the customers of vulture funds first. The Central Bank and the Minister for Finance assured these mortgage holders at the time of the sale that they would be no worse off as customers of vulture funds. But those assurances have rung hollow. The vulture funds have increased their rates to well above the mainstream banks' rates. So, for example, an existing customer of permanent tsb is paying an average of 4.5% on their mortgage, whereas a former permanent tsb customer whose loan was sold to Pepper is paying up to twice that. This is causing real hardship.

Giving these customers a bit of tax relief would be a help. But it would be much better if the Central Bank and/or the Minister for Finance required the vulture funds to treat their customers fairly by offering them the same rates which the banks who sold the mortgages are offering their customers. Thus, a former customer of permanent tsb who is now a customer of Pepper, would be able to fix their mortgage rate at around 4.5%.



The second group which may need support are those mortgage holders who have suffered a drop in income and can no longer meet their full mortgage repayments. The main cause of mortgage arrears is unemployment and not interest rate rises, although interest rate rises do exacerbate the problem.

The first port of call for these borrowers is to ask their bank to reschedule their mortgages. Most repayment problems can be resolved with some combination of a payment moratorium, a period of interest only, or by extending the term of the mortgage.

The state should only get involved if the borrower’s repayment capacity is permanently impaired and there is a risk that they may lose their home. These borrowers should get help with their mortgage repayments, but it should be repayable and not a normal social welfare payment. The mortgage holder would repay it when their financial circumstances improve. If their financial circumstances do not improve, it would be repaid to the Exchequer when the house is eventually sold either by the borrower or by their estate after they die. As most mortgage holders have positive equity in their home, this help would cost the government very little and would be a huge benefit to the borrowers.

They did this in the UK in 2018. The government stopped providing a social welfare top-up to struggling borrowers but offered the same in the form of a loan. As a result, the numbers claiming it fell from around 100,000 to 20,000.

Introducing such a targeted payment in Ireland would ensure that only those who genuinely need government support would get it and that the taxpayer would not be subsidising the better off.

Brendan Burgess is a consumer advocate and founder of the Consumer Forum askaboutmoney.com

 

[Brendan Burgess]

It's based on my pre-Budget submission

My pre-Budget Submission on a Repayable Mortgage Interest Supplement

A proposal for a Repayable Mortgage Interest Supplement 21 September 2023 The writer is a consumer advocate and founder of the Consumer Forum, www.askaboutmoney.com. The opinions are my own and not the views of the contributors to Askaboutmoney. This is an updated version of previous...

www.askaboutmoney.com

 

[Towger]

If you want the permanent government to endorse such a scheme to their masters:

It needs clear and unambiguous rules on who qualifies and for how much. These rules should be based in data the State/Revenue already holds.
It also needs to be designed in such as way as to allow it cease without messing, sudden drop offs or basically people whinging.

This requires a working mathematical formula for easement of 'hardship' which reduces down to zero when interest rates drop, income increases or dependants reduce etc. Easier said than done!

 

[cremeegg]

Any help to mortgage holders in the Budget should be focused on those who really need it

Why ?

Why should my taxes be redirected to those who contribute less.

Are they hungry ? Thats what we have social welfare for, paid for by taxes

Do their children need schooling ? That's what we have an education system and a back to school allowance for.

Do they need medical treatment ? That's what we have a medical card system for.

Is their standard of living reduced by the increases in interest rates. Mine too.

 

[CorkHome2022]

I have an article in today's Indo.

Brendan Burgess: Any help to mortgage holders in the Budget should be focused on those who really need it

There have been calls by politicians for the introduction of tax relief for mortgage holders to help them cope with recent interest rate increases. This tax relief would be paid whether or not the borrower was in arrears.

www.independent.ie

Any help to mortgage holders in the Budget should be focused on those who really need it



There have been calls by politicians for the introduction tax relief for mortgage holders to help them cope with the recent increases in interest rates. This tax relief would be paid whether or not the borrower was in arrears.

This is misguided. Despite the increases in mortgage rates, most mortgage holders are not struggling. Customers of the main banks are paying an average mortgage rate of about 4.5%. That is higher than it was 18 months ago, but it’s not particularly high by historical standards. It is still much cheaper to pay a mortgage than to rent an equivalent home.

Anyone who bought their home in recent years, must have been on a higher-than-average income in the first place to get a mortgage. They also managed to save up a deposit of at least €30,000. Homeowners, even with expensive mortgages, are the better off in society, so why should the general taxpayer, many of whom are renters, be asked to subsidise them? It makes no sense.

However, there are two groups of mortgage holders who do need action from the government – customers of vulture funds and customers of the mainstream banks who can’t meet their mortgage repayments.

Taking the customers of vulture funds first. The Central Bank and the Minister for Finance assured these mortgage holders at the time of the sale that they would be no worse off as customers of vulture funds. But those assurances have rung hollow. The vulture funds have increased their rates to well above the mainstream banks' rates. So, for example, an existing customer of permanent tsb is paying an average of 4.5% on their mortgage, whereas a former permanent tsb customer whose loan was sold to Pepper is paying up to twice that. This is causing real hardship.

Giving these customers a bit of tax relief would be a help. But it would be much better if the Central Bank and/or the Minister for Finance required the vulture funds to treat their customers fairly by offering them the same rates which the banks who sold the mortgages are offering their customers. Thus, a former customer of permanent tsb who is now a customer of Pepper, would be able to fix their mortgage rate at around 4.5%.



The second group which may need support are those mortgage holders who have suffered a drop in income and can no longer meet their full mortgage repayments. The main cause of mortgage arrears is unemployment and not interest rate rises, although interest rate rises do exacerbate the problem.

The first port of call for these borrowers is to ask their bank to reschedule their mortgages. Most repayment problems can be resolved with some combination of a payment moratorium, a period of interest only, or by extending the term of the mortgage.

The state should only get involved if the borrower’s repayment capacity is permanently impaired and there is a risk that they may lose their home. These borrowers should get help with their mortgage repayments, but it should be repayable and not a normal social welfare payment. The mortgage holder would repay it when their financial circumstances improve. If their financial circumstances do not improve, it would be repaid to the Exchequer when the house is eventually sold either by the borrower or by their estate after they die. As most mortgage holders have positive equity in their home, this help would cost the government very little and would be a huge benefit to the borrowers.

They did this in the UK in 2018. The government stopped providing a social welfare top-up to struggling borrowers but offered the same in the form of a loan. As a result, the numbers claiming it fell from around 100,000 to 20,000.

Introducing such a targeted payment in Ireland would ensure that only those who genuinely need government support would get it and that the taxpayer would not be subsidising the better off.

Brendan Burgess is a consumer advocate and founder of the Consumer Forum askaboutmoney.com

No doubt the best option for Vultures is to make them adhere to the original lenders rates , after all they bought the loans at a massive discount and the profits they stand to make will be very healthy , if you give tax breaks on interest it only serves to drive those rates higher when the Vultures know the taxpayer is picking up the tab. It costs the State nothing to enforce this action .

 

[Purple]

No doubt the best option for Vultures is to make them adhere to the original lenders rates , after all they bought the loans at a massive discount and the profits they stand to make will be very healthy , if you give tax breaks on interest it only serves to drive those rates higher when the Vultures know the taxpayer is picking up the tab. It costs the State nothing to enforce this action .

Great idea. Can it be done?

 

[JD2021]

Excellent Article , I believe and some very good solutions worth considering. I speak as someone who is a Vulture Fund customer on my home and who has watched rates rise inexplicably from 3.9% to 6.6% and rising. I know the reasons why Vulture Funds can raise rates has been explained but I still find it extraordinary that despite them purchasing Mortgages with massive discounts (they are reluctant to disclose) their Funding primarily private and in no way linked or affected by ECB rate fluctuations.

Its also worth pointing out that they never once matched ECB rates when they were at an all time lows , in my own case they purchased my mortgage from PTSB in 2019 at a rate of 3.9% which remained at the level up till 2022. I still see no logic as to their approach with regard to increasing interest rates , they've have, dare I say forced many into arrears.

Up until very recently Vulture Funds would not entertain extending a Mortgage or lowering interest rates , that has now changed. It may suit some Borrowers and I believe this new approach led by recent circuit court Judgement, most notably Pepper Finance where a couple facing repossession got an extension of their mortgage and a FIXED interest rate of 2.5% as part of a PIA , I was offered an extension of 32 years and a variable rate of 3% but will still owe €45k on my death if I lived to 95, I am 57 and total Mortgage Balance now is €60k

I am currently negotiating a Full discharge of my Mortgage , details on another Thread.

 

[ClubMan]

I speak as someone who is a Vulture Fund customer on my home and who has watched rates rise inexplicably from 3.9% to 6.6% and rising

It may be unwelcome, but it's certainly not inexplicable.
The ECB rate has risen from a low of 0% in late 2019 to 4.5% now - a full 2% of which has come just this year.

Official interest rates

The three official interest rates the ECB sets every six weeks as part of its monetary policy to steer the provision of liquidity to the banking sector.

www.ecb.europa.eu

 

[JD2021]

It may be unwelcome, but it's certainly not inexplicable.
The ECB rate has risen from a low of 0% in late 2019 to 4.5% now - a full 2% of which has come just this year.

Official interest rates

The three official interest rates the ECB sets every six weeks as part of its monetary policy to steer the provision of liquidity to the banking sector.

www.ecb.europa.eu

As I have explained, Vulture Fund, funding is Private , not linked to ECB rate fluctuations and if Borrowed , done so privately at very low interest rates. The reason they are Hiking rates is because they Purchased Variable Rate Loan contracts , already on high rates of Interest. Worth mentioning they only starting raising rates a few months into the ECB increasing rates and as I have pointed out, where not so Keen to Match historically low ECB rates.

On reading the case involving Pepper Finance, it was clear they were unwilling to disclose what they paid for the couples Mortgage, also very telling they did not appeal the Judgement of an extension of a couples mortgage or the fixed 2.5% fixed interest rate.

I would argue they were already making a decent profit on the Mortgages they purchased and there is little Justifiable logic in them increasing rates, lets not forget many of their customers where actually paying 7% before ECB rates started to rise.

 

[RedOnion]

and if Borrowed , done so privately at very low interest rates

If borrowed, it'd be at variable rates linked to EURIBOR. Which has gone up.

 

[ClubMan]

I would argue they were already making a decent profit on the Mortgages they purchased and there is little Justifiable logic in them increasing rates, lets not forget many of their customers where actually paying 7% before ECB rates started to rise.

Well good luck arguing that with the likes of the Central Bank or FSPO. They don't/won't care based on my own experience of helping someone make a complaint about what I still see as the inherently unfair terms of most or all non tracker variable rate mortgage contracts that allow any lender to change the rate charged without any constraints or reference to "wholesale" costs.

 

[JD2021]

If borrowed, it'd be at variable rates linked to EURIBOR. Which has gone up.

My understanding and open to correction, the vast majority of their Borrowing ,, if they even borrowed was at 1% fixed over 35 years

 

[JD2021]

Well good luck arguing that with the likes of the Central Bank or FSPO. They don't/won't care based on my own experience of helping someone make a complaint about what I still see as the inherently unfair terms of most or all non tracker variable rate mortgage contracts that allow any lender to change the rate charged without any constraints or reference to "wholesale" costs.

O I agree, the Central bank and Minister for finance have been asleep at the wheel

 

[RedOnion]

My understanding and open to correction, the vast majority of their Borrowing ,, if they even borrowed was at 1% fixed over 35 years

It depends on which one you're talking about.
Some portfolios were securitised, and notes issued tracking EURIBOR.
I'd love to see the basis of claiming the 'vast majority' was fixed for 35 years.

 

[JD2021]

It depends on which one you're talking about.
Some portfolios were securitised, and notes issued tracking EURIBOR.
I'd love to see the basis of claiming the 'vast majority' was fixed for 35 years.

As I said, I'm open to correction. Vulture Funds generally large scale investment Funds that have no need to borrow money

 

[skrooge]

I agree that any form of relief will just give the vulture funds further scope to push up rates and will just result in a transfer of wealth from the State to VFs.

Like them or not the reality is the VFs provided an important role in tidying up the banks balance sheet. They moved things off banks balance sheet much faster than if banks had to work through the courts.

Do we still need them? If we had another crises leading to high arrears/defaults are there systems in place to streamline the repossession process? I'm open to correct but I think the answer is no.

So if we might need them again we need to avoid measures that would undermine their business model. That's before you even consider the legalities or constitutionality of forcing them to lower rates.

However, might there be scope to expand some of the existing mortgage supports to make these borrower's more attractive to banks. What about something like the first home scheme whereby the State underwrites part of the loan. It might help some VF customers move.

 

[CoolHand]

As I said, I'm open to correction. Vulture Funds generally large scale investment Funds that have no need to borrow money

All "Funds" would have borrowed most of the money to acquire any loan portfolios. Borrowing allows them leverage, which can boost returns on any equity invested. A key measure for any firm.

Funding costs range but would generally mirror the asset type they are acquiring and the intended disposal strategy. If buying variable rate mortgage contracts might have had variable rate financing etc. They may have been able to manage higher rate funding costs if they only intended holding assets for a short to medium term.

 

[JD2021]

All "Funds" would have borrowed most of the money to acquire any loan portfolios. Borrowing allows them leverage, which can boost returns on any equity invested. A key measure for any firm.

Funding costs range but would generally mirror the asset type they are acquiring and the intended disposal strategy. If buying variable rate mortgage contracts might have had variable rate financing etc. They may have been able to manage higher rate funding costs if they only intended holding assets for a short to medium term.

My understanding is most Vulture Funds are in turn owned by vast Private asset or Pension funds with little requirement to borrow to buy up Mortgage Portfolios but I am no expert.

I get a sense some are actually looking to exit the Irish Market having realized they are stuck for the long Haul , I am aware some have sold mortgages on to approved housing bodies and are actively encouraging customers to look at the Mortgage to rent scheme.

That recent Judgement involving Pepper Finance has certainly focused the minds of some Vulture Funds, a year ago none would either entertain the notion of extending a Mortgage or lowering interest rates.

 

[ClubMan]

I get a sense some are actually looking to exit the Irish Market having realized they are stuck for the long Haul

"Having realised"? Surely, an entity buying a portfolio of mortgages knows, a priori, that it's a long term venture? I doubt that this dawned on them slowly after the fact...

 

[Leper]

Any help to mortgage holders in the Budget should be focused on those who really need it

Why ?

Why should my taxes be redirected to those who contribute less.

Are they hungry ? Thats what we have social welfare for, paid for by taxes

Do their children need schooling ? That's what we have an education system and a back to school allowance for.

Do they need medical treatment ? That's what we have a medical card system for.

Is their standard of living reduced by the increases in interest rates. Mine too.

Most of the above would have some kind of Means Test which many mortgage holders would fail. The person paying the mortgage is definitely the one person who should be assisted in trying times. It is not the mortgagee who has control over raising or reducing interest rates. The mortgagee is the person in the "doomed" position. When interest rates do reduce eventually (although much more slowly than they increased) the mortgagee is the person still in financial trouble and will be chasing his former disposable income for years to come.

I don't see too many positive options for the hard pressed mortgage payer other than help from Vincent de Paul, I am sorry to say.