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Wednesday 6 December 2023 Dublin: 8°C
Alamy Stock Photo Finance Minister Michael McGrath says many mortgage holders have been in direct contact with him to share their own personal story.

McGrath working on 'very targeted' measures to help mortgage holders with sky high interest rates

Plans are being worked on to rescue borrowers stuck with vulture funds charing up to 10% mortgage interest.

TARGETED MEASURES TO help mortgage holders struggling with very high interest rates is set to form part of this year’s budget, it is understood. 

Finance Minister Michael McGrath called in the banks, vulture funds and the Central Bank yesterday to discuss what measures the banking industry are rolling out to ensure borrowers are supported at this time of rising interest rates. 

With just over a month out to budget day, it is believed the minister was firing a warning shot that the government would step in with interventions due to the banking sector and regulators displaying a lack of urgency. 

In a statement after the meeting, the minister said:

“It will now be necessary for the industry to demonstrate that they are delivering for borrowers in difficulty with supports and certainty, and developing long-term sustainable solutions for borrowers.

“I have asked the industry representatives to reflect on the discussion today and to set out their response as a matter of priority.”

In his statement, the minister highlighted the need for customers to be allowed to easily access a mechanism to switch mortgage providers.

As budget talks continue, it is believed that the finance minister has grown increasingly frustrated at the slow pace in which customers have been supported.

Customers trapped with high interest rates

Senior government sources state that McGrath is currently working on budget ideas to help mortgage holders, particularly those trapped paying high interest rates to overseas funds.

It is understood the finance minister is working with Social Protection Minister Heather Humphreys on possible measures, which could include targeted measures that are limited to borrowers who tried to switch mortgage providers and have been refused.

Expanding the Mortgage Interest Supplement to provide short-term income support to those who are unable to meet their mortgage interest repayments is under consideration. 

Other ideas being worked on included enabling mortgage holders to switch their loans from a vulture fund to state-backed initiatives such as the Local Authority or Rebuilding Ireland home loans scheme. 

McGrath also wants banks to make it easier for borrowers whose loans were moved to a vulture fund to switch back to one of the pillar banks.

fianna-fails-spokesperson-on-finance-michael-mcgrath-td-seen-outside-leinster-house-in-dublin-in-dublin-ireland-on-friday-24-november-2017-photo-by-artur-widaknurphoto Alamy Stock Photo Alamy Stock Photo

He welcomed a court decision in May which forced a mortgage servicer, called Pepper, to give a borrower couple a low fixed rate of 2.5% for 25 years.

The minister said at the time that loan owners and mortgage providers should be offering fixed-rate options to their borrowers. Pepper has not been offering fixed-rate product solutions.

Charging 10% mortgage interest

The hikes in interest rates have been felt by mortgage holders on variable and tracker rates and by any homeowner who has reached the end of their fixed-rate term.

Some 60,000 mortgage holders whose mortgages are owned by vulture funds are unable to switch to high-street lenders and are stuck on rates as high as 10%.

Vulture funds hold the mortgage contracts of around 85,000 Irish households.

As financial expert Mark Coan recently wrote in The Journal, many assume that the mortgages in this situation have ‘gone bad’, in reality only around 20,000 of them are currently behind in their repayments.

In fact, many people with the vulture funds have never been in any financial trouble, ending up with the funds through sheer bad luck. A sizable group of these customers, over 30,000, are simply with these funds due to the loan sales.

Senior government sources state that McGrath is “genuinely concerned” about the issue and “wants to do something to help those who need it”. 

They acknowledged there are wider concerns relating to the rental market if mortgage holders are paying interest rates close to 10% with non-bank entities.

Impact on rental market

Housing Minister Darragh O’Brien has confirmed tax breaks for landlords are on the table in a bid to keep supply in the rental market.

However, there are now concerns that landlords trapped in high interest mortgage repayments may be forced to sell up, resulting in a further uptick in notices to quit for tenants.  

“There is definitely no gain for anyone in repossessions happening in these cases,” said the senior source, who added that it is only renters, mortgage holders, and the government that lose out in such scenarios.

Opposition parties had called for a blanket form of mortgage interest relief but there has been pushback from those within government who fear it could ramp up house prices further. 

Sinn Féin spokesperson on Finance Pearse Doherty welcomed the meeting the minister held with the banking sector yesterday, stating that he has been calling for a strategy to be developed to support those facing soaring interest rates.

“Households have faced a massive income shock as a result of soaring interest rates – with 1 in 5 households set to see their annual mortgage costs rise by more than €5,700.

“Households that had their mortgages sold off to vulture funds have seen their interest rates soar to as high as 10%, effectively becoming mortgage prisoners.

“These sales were supported by Fianna Fáil and Fine Gael and were carried out by many of the banks and vulture funds that attended today’s meeting.

“They have a responsibility to right this wrong and to provide a path for these households to return to the mainstream mortgage market,” said Doherty. 

Options to switch from vulture funds

He said there has been little evidence of households switching from vulture funds to mainstream banks, stating that today’s meeting must result in real action rather than simply being a box-ticking exercise.

“How many households have tried to switch from vulture funds to mainstream lenders in the past 12 months? How many have been successful and how many have not?

“These are the questions to the Central Bank and Government should be asking and acting upon. It is also incumbent on the Government to support households that are suffering from this income shock,” he said, stating that the government cannot stand idly by.

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