2nd June 2020

Think Mortgage Matters …..not Mortgage Masters! 

The EBS have an aggressive ad campaign playing at the moment whose message is both clear and unrelenting, namely that they are the mortgage masters. However, for many homeowners and indeed prospective homeowners, it is mastering mortgages that they are more concerned about – be it seeking a mortgage break as the Covid-19 crisis has devastated their income or trying to deal with a bank that is moving the goalposts on a mortgage loan that they thought they had in the bag.

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For those seeking a deferral on mortgage payments, the banks have allowed deferrals of mortgage loan interest and capital repayments for up to 6 months. In addition, there is scope for individuals seeking longer payment deferral terms to talk with their banks with the big proviso that it is totally at the relevant bank’s discretion whether they do entertain a timeframe longer than 6 months. The fact that the banks moved quickly in March to give hard-pressed homeowners the option of payment deferrals was undoubtedly a very positive development, particularly from a sector not known for their alacrity and fair-mindedness with customers. 

However, there is ‘no gain with no pain’ as whilst you will be not paying any interest during the break period, the interest clock will still be ticking so that ultimately you will have to pay the bank more interest as it will be added back over the term of your mortgage. It won’t be paid back in one lump sum but spread over a period. Permanent TSB have an example where it shows a borrower paying a rate of 4.5 % interest on a mortgage balance of €250,000, with a remaining term of 20-years. Before a break was taken, the homeowner is paying €1,581 a month. But after taking a break for just 3 months from paying the mortgage payment, the recalculated monthly repayments at the end of the period will be €1,611, or €30.98 more. Moreover, the total amount repayable over the lifetime of the mortgage now increases by €2,453.47.

Since the first announcement of the mortgage payment breaks on the 18th of March, to date mortgage borrowers of nearly 80,000 have availed of this, in accordance with the latest update from the (BPFI) Banking & Payments Federation Ireland. With the deadline for applying being the 30th June, it is odds on that this number could rise appreciably.

The key issue is, if one does need the mortgage break, then make sure and take it as many people are under significant financial stress with jobs and income up in the air so keeping a tight rein on outgoings is essential. The corollary of that also holds true i.e. if you can continue to make your mortgage repayments then do so as no one wants to pay any more interest than is necessary on any loan if they can do so. It is a very difficult time all round but it is crucial that people who are struggling with their mortgage repayments get in touch with their mortgage lender as soon as they can as it can take a couple of weeks to organise the mortgage break. It is also very important to point out that taking a break does not put one on the missing payment ‘naughty step’ on the Central Credit Register and there will be no affects to the credit records of the Irish Credit Bureau with confirmation in March by the Central Bank.

Moving on to those already on the mortgage trail and waiting to close on their new house purchase there are a few headaches to surmount here as well. The mortgage market has hit a few speed bumps in this Covid-19 crisis with a significant one being the fact that so many employees (be they banks, auctioneers, or solicitors) are working from home. Other factors have also been ignited by the crisis as caution is now top of the lenders’ agenda. A bank is allowed a grant exemption of their loan book for up to 20 percent but most are not doing that for the time being i.e. If you are buying a home for the first time, you can borrow 3.5 times your income up to 90 percent of your property's value and that 20% discretion of the banks meant some borrowers could potentially get a bit more than that but Covid-19 has seen that get the ‘black card’ and it could stay off the pitch for the foreseeable future. 

Valuations too are not black and white in the current climate as not only is it taking longer to get them as valuers have difficulty accessing properties under current government rules but there is also a caveat on those that can be obtained to reflect the fact that currently, normal market conditions do not exist yet.

For those with a current and approved mortgage (also known as Approval in Principle), you still have it and it isn’t affected by the coronavirus. Unfortunately, as you are ‘moving through the fair’ to the next phase i.e. getting a formal offer (Offer letter) from your bank, things may get tricky if your financial circumstances have changed with the crisis as the banks will ask you to confirm if you are employed and if your current income position has not materially changed since you got your approval.

If there is a change in your circumstances, a review will be undertaken by your lender which will then decide as to whether or not you are able to still pay the regular and agreed mortgage repayments. The Banking & Payments Federation Ireland have a very good Q&A on their site on all these issues so check it out on https://www.bpfi.ie/key-topics/mortgages-covid-19-support-faq/

As one can see Covid-19 has had many bad side effects for those in the mortgage market and even the life insurance side has also been affected as having mortgage protection life insurance is a necessity before any mortgage loan can be drawn down. Here however the effects are thankfully relatively minor in that life companies have added some additional questions to their mortgage protection application forms re Covid-19 and are postponing any cover on any individual who has tested positive for COVID-19 until they have made a full recovery. 

Thankfully though we have all been living on the Costa del Ireland for the last few weeks as the sun always lightens any gloom and it certainly isn’t going to stay too gloomy in the mortgage market as the Myhome.ie Consumer Survey released on 2nd June finds that 68% of potential buyers are planning on purchasing a property in the next year. Roll on 2021!