OK, let's analyse this using the Insolvency Service's Reasonable Living Expenses
A couple with one primary school child and one seconary school child (assumed) and a car would require €1,900 per month before mortgage repayments and any exceptional costs e.g. exceptional medical bills.
Your income is €2,900 per month
This leaves you with €1,000 per month towards the mortgage.
So the ptsb request for €1,080 is just about right. It's in line with the Insolvency Service Guidelines.
You need to review your budget. Make an appointment with MABS to see how you can live within the guidelines. If your wife's self-employed business is not generating much income, can she apply for a salaried job?
You are in some danger of losing your tracker if you say that you can't afford this. Under the new Mortgage Arrears Code, they could offer you a deal to extend the interest only but take you off your tracker. This would make your situation far worse.
Why have you €5,000 in savings? Why not use this to make your mortgage repayments? That alone, would pay the extra amount required for the next 12 months. Have you disclosed the €5,000 in savings on the SFS?
Overall, it seems that ptsb are being very reasonable.