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Monday 18 December 2017

Families will 'subsidise' struggling homeowners

HOMEOWNERS who can afford to pay their mortgages could see their repayments shoot up in order to subsidise those struggling to pay their debts.

Bank of Ireland boss Richie Boucher has admitted that the bank is weighing up whether it should increase the interest rates on all home loans to compensate for changes brought about by new personal insolvency rules.

These rules mean some of the most vulnerable households will get part of their mortgage debt written off.

The balance of scales has tipped in favour of those who are unable to meet the repayments as but ultimately it means that any rise would hit customers on variable mortgages.

Homeowners on tracker mortgages will not be hit by any of the increases that are put in place by the banks as the European Central Bank controls tracker rates.

In some extreme circumstances, the rules would allow for mortgage debt to be "written down" and can shorten the current 12-year bankruptcy term to as little as three years.

But thousands now face an additional rise in their monthly repayments as banks attempt to recoup the write-off.

Mr Boucher said that the bank is currently investigating whether the new personal insolvency rules were a "fundamental change" in the mortgage landscape.

He said that the bank would then have to "look at" its assumptions around mortgage risk.

"I wouldn't want to be alarmist about that," he said.

"We do recognise that the existing arrangements aren't sustainable, that some change was needed."

Bank of Ireland is the first institution to admit to looking at the prospect at pushing up repayments for fixed rate mortgages to compensate for this added "risk".

It could also mean that new borrowers would be charged a higher rate.

But it is believed that at least one other bank is investigating this measure.

International ratings agency Moody's said last week that up to 25pc of the mortgages in Irish banks were vulnerable to being written down under the new insolvency rule, which could trigger "widespread debt forgiveness".

Bank of Ireland gave out 50pc of Ireland's new mortgages last year and just over half of its loans relate to mortgages.

The bank became the first to turn a profit since the onslaught of the economic downturn.

Bank of Ireland posted a net profit of €40m in 2011, primarily as a result of one-off items such as a tax credit and a bond exchange.

In 2010, the bank made a net loss of €609m.

Read Dan White, Page 14

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