ISSUES RAISED in the row between buy-to-let interest-only tracker-mortgage holders and Permanent TSB look destined for the Supreme Court.
Thousands of customers, who bought investment properties with the bank’s interest-only tracker mortgages, are challenging its claim that their loan agreements entitled it to demand that they begin repaying the principal sum as well as the interest. The bank’s demands threaten to massively increase the cost of their repayments.
Interest-only tracker mortgages, which are tied to cheap wholesale interest rates, cost the bank €744 million last year, according to its annual report.
One of the group, Alan Grant, head of mortgages at auctioneers Douglas Newman Good, recently took his own action against the bank to the Financial Services Ombudsman, which ruled in Permanent TSB’s favour.
Mr Grant challenged this in the High Court, which ruled in the ombudsman’s favour in July. He is now planning to appeal that to the Supreme Court. He will first have to seek the High Court’s leave to appeal the ruling, which he is expected to do after the new law term starts next month. If Mr Grant gets the go-ahead, it will be the first time the Supreme Court will have had the opportunity to rule on the controversial issue.
Mr Grant’s legal challenge is based on the procedures followed by the ombudsman in making its ruling. The court cannot rule on the ombudsman’s actual findings, but can scrutinise the procedures followed in making the decisions.
However, legal sources say that the overall group, represented by solicitor Walter Odlum, is challenging the basis of the bank’s claim that it is entitled to demand that they begin repaying the principal as well as the interest after a certain period of years elapse on the loans.
The borrowers’ argument is that they are only required to repay the interest for the life of the loan and that the principal sum is cleared with a “bullet” repayment at end of the mortgage’s term.
The bank’s claim is based on the special conditions to which it says the borrowers originally agreed when they first took out the loans.
However, the borrowers argue that when they first applied for the loans, they signed statutory forms as required by the Consumer Credit Act. They say the special conditions were only introduced at the last minute, when they were signing for the mortgage. They claim the bank could not introduce these terms and that the Consumer Credit Act only applies.
In addition, they say that the loans were marketed and sold on the basis that they were interest-only for the life of the agreement.
Their third point is that the bank required that the repayments would be underwritten by the rent paid on the investment properties, which it calculated at 1.2 times the interest due on the debt.
Banks are losing money on interest-only tracker mortgages because the cost of funding the loans is far higher than the repayments, which are tied to historically low wholesale interest rates.
Permanent TSB’s chief executive Jeremy Masding told the Oireachtas Committee on Finance, Public Expenditure and Reform, that the Consumer Credit Act did not apply to buy-to-let interest-only tracker mortgages.
