In recent years the number of borrowers in trouble with mortgage repayments has dropped substantially. One of the benefits of lower rates is that far fewer people get into trouble with their repayments - and the shock of escalating payments because of rising interest rates is something borrowers have not had to face in quite some time.
Nevertheless, there are always people who get into trouble. Even in a booming economy people lose their jobs or get ill, and couples separate or face other sudden, large expenditure. So how your lender may react should you face a crisis is certainly something to take into account when deciding on which lender to choose. Facing eviction or mounting arrears payments at a time of terminal illness or other stress is an uncommon experience, but it can happen.
In the past, most lenders imposed penal interest rates on anyone who fell into arrears. However, among the major lenders it is now only Irish Nationwide, AIB and Bank of Ireland who impose penalties on borrowers whose luck may have turned. Other lenders, including EBS, First Active, Irish Permanent and Ulster, simply charge normal interest on all outstanding balances.
All lenders say that the number of customers going into arrears has fallen dramatically. But the most important piece of advice for anyone in trouble is to contact the lender and arrange a meeting to explain the situation.
The lenders all say they would react favourably to anyone who explains they will have difficulties for a short period of time. However, arrears can quickly mount up and it is important to get on top of the situation.
They also say they react very differently to different borrowers. Privately, they say that people in trouble simply because they overspend or sometimes have alcohol or other problems may not be given the same freedom to reschedule as someone who is genuinely ill.
A spokeswoman for Ulster Bank said the bank does not see any reason to pursue a customer who is already in difficulties into more difficulties. "At the end of the day, their home is at risk and people do not mess around. But if they do, you both end up in court and that costs you both a fortune. It is far better to have a chat and sort out the problems at an early stage," she said.
According to EBS head of lending, Martin Walshe, avoiding arrears starts at the underwriting stage. "It is simply not in the customers' interest to take on an obligation they will not be able to meet. But the vicissitudes of life do hit ordinary people. Our whole policy is to get the customer back on the rails immediately."
All the lenders consider a range of options when it comes to getting the customer back on track. Group operations director, Paul Reville, says First Active goes through the customer's finances to find some way of making the monthly repayment. After that, the customer can have two to three months before beginning to repay the arrears. But it is only in exceptional cases where it will consider rescheduling the debt and usually it would factor the arrears back into the original repayment term.
"The important thing is that people come in and talk. The worst thing to do is ignore arrears because they will not go away and will always get worse."
But this is undoubtedly easier for the customer than attempting to pay off arrears which are mounting by the month with additional interest being charged. Bank of Ireland, ICS and AIB all charge an additional 0.5 per cent a month on the amount of the arrears, which amounts to 6 per cent annually.
A spokesman for Bank of Ireland said the penalties are implemented on an individual basis and there is some discretion. The AIB charges the same amount, but it too says that this can be waived if the bank is happy that every effort is being made to get the loan repaid. It will consider rescheduling debt and extending the mortgage term. "The main issue is that we are all happy that the new arrangement will be adhered to," said Mr Aidan Clarke, the bank's head of mortgage lending.
BUT fines imposed by Irish Nationwide are substantially above these levels. Under its controversial "Section 18" fines are computed at 5 per cent at the end of each quarter. This is equivalent to 20 per cent a year. As well, on January 1st, interest is calculated for the full year on the opening balance including capital, arrears and fines on arrears which is an effective rate of over 25 per cent.
A spokeswoman for Nationwide said the society generally only applies 2.5 per cent, although it is at the discretion of the society to apply up to the maximum of 5 per cent. "The reality of having a charge is to persuade people to address the problem. It can be a bit endemic here and people will let things drift. A penalty persuades them not to."
