The five main banks had extended 67,000 Covid payment breaks to owner-occupiers
And all that after the taxpayer had pumped billions into keeping them afloat in the aftermath of the financial crisis.
Just days into the initial phase of ‘lockdown’, the banks – with the go-ahead from the European Banking Authority (EBA) – announced that consumers and businesses impacted by job losses or other sources of financial distress arising from the pandemic could apply for a three-month holiday from their loans.
It was subsequently extended by a further three months.
The response was enthusiastic and welcomed by those in financial difficulty as a result of the pandemic. At its peak, the Central Bank said 160,000 loans – amounting to in excess of €20 billion – were subject to a payment break.
On the mortgage front, the five main banks had extended 67,000 Covid payment breaks to owner-occupiers by the end of May.
By the start of September, half of those had returned to regular payments.
Fast forward to the end of that month, the banks, in line with guidance from the European Banking Authority, decided to bring the payment breaks to an end.
For those who availed of such a facility, there are many questions about where they go next.
I only got my payment break recently – has it ended now?
No. According to the Central Bank, the majority of payment breaks were granted between end-March and mid-June.
However, mortgage holders continued to avail of them up until the end of September.
There were some concerns expressed that the end-September date would effectively act as a ‘cliff edge’ for mortgage holders who had availed of a payment break.
Tánaiste and Minister for Enterprise Leo Varadkar confirmed that this wasn’t the case.
The end-September date was merely the last day on which borrowers could apply for such a facility, he said.
So, if you were granted a break recently, it will continue for the duration of the term of the break.
I was told I would end up paying more interest because I availed of a payment break. Are the banks allowed to do that?
This was a source of some controversy in the early days of the payment breaks being granted, which – fairly or unfairly – overshadowed much of the goodwill directed towards the banks for their quick response to the crisis.
Many, including some in the political realm, accused the banks of profiteering on the backs of customers who were in a difficult situation through no fault of their own.
Not so, said Brian Hayes, chief executive of the banking representative group, the Banking and Payments Federation of Ireland.
“The Irish payment break moratoria including the accrual of interest is, always has been and remains fully in line with EBA Guidance,” he said in a statement in July.
“The payment break is offered on the same conditions as payment breaks in the past, and we believe that it is important that we have fairness of treatment across the board for past, present and future customers wishing to avail of breaks,” he added.
The Governor of the Central Bank told an Oireachtas Committee that it was up to the individual banks as to how they would proceed but that they weren’t legally obligated to charge interest on the portion of the loan put aside for the term of the payment break.
On its website, the Central Bank clarifies that financial institutions should spell out to borrowers how payment breaks will impact on their loan and the repayments.
“Your lender may spread your repayments over the remaining term of the mortgage/loan, to allow you to repay it within the original term. This means that you will have to pay higher repayments (spread out) over the remaining term of the loan,” the regulator explains.
“Alternatively, your lender may offer you the option to extend the term of the loan by the length of the payment break. This spreads your repayments over a longer period. Both options mean your loan will cost you more overall. Your lender should let you know what the additional costs are likely to be.”
All of the main lenders said they intended to proceed with the application of interest to the portion of the loans that were subject to the payment breaks.
So, how much will it cost me?
The idea of the payment breaks was to give borrowers some breathing space while the crisis plays out.
So, while you would have paid nothing throughout the term of the break, you will end up paying more in the long run.
Most mortgage payers, coming out of a period of difficulty, will likely not be in a position to pay the extra interest in one lump sum.
In that case, there is an option to add it on to the regular monthly mortgage repayments and spread over the remaining term of the mortgage.
The monthly payments won’t be all that much higher than before, but the difference does add up over time.
Daragh Cassidy, Head of Communications with the price comparison website, bonkers.ie, did some calculations on the cost.
He determined that a homeowner with €100,000 left on their mortgage with 10 years remaining would end up paying an extra €493 in interest to the bank over the remainder of the mortgage in the event of them opting for a three-month break.
“However, if you have €300,000 remaining over 30 years, you’ll end up paying over €4,300 to your bank if you take up the offer of a six-month stay,” he calculated.
Both of the examples above are based on someone paying an interest rate of 3.2% for the remainder of their mortgage term.
What if I’m not ready to go back onto full repayments at the end of the term of the payment holiday?
This is the nub of the argument from those who opposed the ending of the payment breaks in recent weeks.
Sinn Féin’s Finance spokesperson Pearse Doherty pointed out that thousands of people are still on pandemic payments – now reduced from the original flat payment of €350 – many of who are not in a position to resume loan repayments.
And with the entire country now under Level 3 restrictions, the numbers applying for the Pandemic Unemployment Payment are expected to increase in the coming weeks.
Many of these may need some forbearance on their loans.
The Banking and Payments Federation confirmed that banks can continue supporting customers with a range of solutions, including extended payment moratoriums, on a case by case basis.
Other solutions include reduced payments, longer loan terms or a period where the mortgage holder can pay just the interest portion of the loan.
The BPFI said the banks had deployed hundreds of staff to work with customers coming off the payment breaks to ‘fully understand their situation’ and put in place additional solutions for them.
The important thing is to keep the lines of communication open with the financial provider.
If a borrower finds that they’ve fallen into arrears, there is a framework called the Code of Conduct on Mortgage Arrears (CCMA), within which there is a specific process called the Mortgage Arrears Resolution Process (MARP).
Financial providers must adhere to this process when engaging with customers who are behind with their mortgage repayments or are at risk of missing their mortgage repayments.
“Lenders need to demonstrate a continued awareness of customers’ financial situations and to deal with cases in the most sensitive way possible,” Finance Minister, Paschal Donohoe said.
Those sentiments were echoed by the Banking Culture Board which said the way the banks support customers through the pandemic will ‘impact on our reputations and trust levels for many years to come.’
Will my loan be classified as being in default because of my payment break?
Not for the term of the pandemic payment break specifically.
The BPFI confirmed that the “industry-wide Covid-19 payment breaks were not reported to the Central Credit Register as ‘missed’ or ‘past-due’.”
It’s important to note, however, that if you secure an extension to the payment break with the lender at the end of the pandemic payment break period, the lender will be legally required to record that on the Central Credit Register.
That could affect the borrower’s ability to secure further finance in future.
However, Banking Federation chief executive, Brian Hayes, sought to reassure individuals that such a situation would not necessarily represent a permanent black mark against the borrower.
“A customer’s good credit record can be restored over time should they be in a position to return to full repayments,” he said.