Mortgage Debt - MABS Investigates
26th May 2021
In MABS we receive a lot of great questions about money matters and tackling debt. Questions that we know many people want to ask, but don't know who to ask or where to start. ‘MABS Investigates’ is here to help. In this series of blogs, we will answer these questions and “investigate” these topics, to bring clarity and break down the jargon.
The focus of this week’s ‘MABS investigates’ is Mortgage Debt. We receive many questions regarding mortgage debt, some of the most popular include:
- My mortgage has been sold; will my contract still be valid?
- I’m struggling to make full repayments on my mortgage, are there any options available to me?
- I’m on a split (warehoused) mortgage and I’m worried I won’t have enough to pay when the time comes. What do I do?
- My partner and I have separated, and I am left paying the entire mortgage. The mortgage lender won’t deal with just me to come to an arrangement, what do I do?
- Can I sell my house to settle my mortgage?
Receiving notification from your lender of their intention to sell your mortgage loan to another lender can cause a lot of alarm and panic. Most of us do not like uncertainty or change, especially with something as important as a mortgage. The best way to manage any concerns is by understanding your rights.
First, it is normal for mortgage loans to carry clauses (terms and conditions) that allow for the loan to be sold on to another lender. Very often this will be in the case with non-performing loans or loans in arrears, but in theory any mortgage can be sold, at any time.
When a new provider is buying your mortgage, they are buying your loan agreement in totality. The contract is effectively passed from one owner to another, so there is no break in the agreed terms and conditions of the contract. Rather it is a continuation of your agreement. The terms and conditions of the loan stay the same as they were with the old lender, including your obligation to pay the mortgage.
Your mortgage provider must give you at least 30 days’ notice of any proposed change. Once the change has been affected, you will be contacted by the new owner. Normally, there will be a transitional period of two months during which you continue exactly as before. At the end of this period, you will be provided with further instruction on how to make payments going forward.
Do you know your rights? Your rights in this area are governed by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 which, since January 2019, requires any firms purchasing loan books to be governed by Central Bank rules. This includes a requirement to abide by the Mortgage Arrears Resolution Process (MARP) designed to assist borrowers in difficulty.
The Code of Conduct on Mortgage Arrears issued by the Central Bank of Ireland sets out a framework allowing mortgage lenders & borrowers in mortgage difficulties to engage with one another in a structured way.
There are many options such as an Alternative Repayment Arrangement (ARA) which may be put in place after completing a required Standard Financial Statement. This shows your financial capability for repayment. There is usually a trial period of 6 months, after which time a long-term resolution will be put into place for your mortgage. Some solutions can include capitalisation of the arrears (This means adding the amount in arrears to the outstanding mortgage balance).
The term of the loan can be reviewed and sometimes a term extension is an option, to provide more time to make reduced payments. Term extensions and capitalisation are common options, depending on your age.
Other options include interest rate reductions or temporary payment reductions, provided by the lender.
If you are unable to meet your payments in full when they fall due and were unable to agree an arrangement with your lender, you may be eligible for a voucher under the Abhaile scheme. This will allow you to see if a Personal Insolvency Practitioner (PIP) can engage with your lender and negotiate a deal to get you back to solvency.
It is important to fully engage with your lenders so that all options suitable to your circumstances can be considered.
I’m on a split (warehoused) mortgage and I’m worried I won’t have enough to pay when the time comes. What do I do?
Split Mortgages, or Warehoused mortgages is where a lender has assessed that a borrower can afford to service a portion of the mortgage but not all of the mortgage debt. The lender will set aside (or warehouse) some of the mortgage, until the affordable amount of the debt is reduced. The warehoused portion then becomes payable. During the term of the serviceable repayments, the lender retains the right to reassess the borrower’s circumstances. If a higher mortgage repayment is affordable, then the lender may suggest moving some of the warehoused portion into the portion being serviced. This reduces the debt that will be outstanding at the end of the term of the mortgage.
For many borrowers in distress, it is a relief to be offered a Split Mortgage. But it is important to remember that there is a lump sum still outstanding at the end of the agreed term. There are ways to deal with this lump sum. Some lenders will look at refinancing this lump sum depending on the borrower’s age and affordability. There may be adult children now living at home who are able to contribute to repayments. If there are spare rooms in the house, it might be possible to take in a tenant to increase affordability for repayments. Downsizing might also be an option as families grow up and move out.
Other options to clear the debt is by way of a lump sum payment, such as, money from a pension on retirement or if there was any inheritance received.
If you are worried you won’t have enough money to pay the balance at the end of the agreed term but are able to increase your repayments now, discuss this option with your lender. If your circumstances have changed that will mean you can’t increase your payments now or pay the balance when its due, again talk to your lender about your situation. If you feel you can’t talk to your lender, talk to MABS and we’ll work with you to put a plan in place.
My partner and I have separated, and I am left paying the entire mortgage. The mortgage lender won’t deal with just me to come to an arrangement, what do I do?
Every mortgage taken out by a couple is jointly and separately liable. This means that both parties whether together or when a couple decides to separate, are both still liable for the debt. Unfortunately, when couples separate, this often places a strain on finances as now there are housing needs for both, along with overheads.
The first step would be to get your finances in order. A call or visit to your local Citizens Information Service(opens in a new tab) to check that you are receiving all your entitlements and supports will ensure that you are maximising your income.
Having ascertained your income – you need to contact your lender and advise them in writing of the change in circumstances and any possible reduction in income. Your lender will request that you both complete a Standard Financial Statement (SFS) along with supporting documents (payslips / bank statements/ social welfare slips). MABS can assist you with this.
If there is affordability for one party to continue to pay the mortgage, then this is what your lender will expect. If the full affordability isn’t possible and only one borrower has completed the SFS, then your lender will continue to seek the 2nd borrower’s engagement in the process. If the 2nd borrower fails to engage, any possible arrangement will be based on the affordability of the engaging borrower. Under the Code of Conduct on Mortgage Arrears (CCMA), lenders must apply the protections of the code to separated borrowers and treat each one as a single borrower.
Most lenders will try to put a solution in place on a case-by-case basis.
It is very stressful when your lender sends letters regarding arrears, and you may feel that you have no option but to sell your property. MABS are here to help you engage with your lender and have supports available through the Abhaile scheme, keeping borrowers in their homes, wherever possible.
Perhaps you have considered all other options available, or you have somewhere else to live and you just want to sell your house.
If your property is in positive equity (the mortgage is less than the value of the property), then you are completely free to sell your property to settle your mortgage debt.
If there is more outstanding on your mortgage than the value of your property (negative equity), you will need the permission of your mortgage lender to sell the property.
If you sell your property at a price less than the outstanding amount on your mortgage debt, you may be able to negotiate a ‘Full and Final settlement’ with your lender. So, the net sale proceeds would clear your mortgage debt by agreement and there would be no further payments to be made.
If your lender is not willing to accept the net proceeds as a ‘Full & Final’ settlement, you could look at one of the Personal Insolvency options(opens in new window) that would be suitable, based on your circumstances and the level of debt.
We hope this #MABSInvestigates blog was useful in helping you get to grips with moneylenders. We understand that sometimes you simply need a loan. We’d encourage you to be informed and money advisers from MABS are available to help. Call 0761 07 2000, talk to an adviser through our online chat or contact your local office.
Do you have a question for MABS Investigates? Get in touch and let us know firstname.lastname@example.org.
Disclaimer: This blog does not represent legal advice and is intended for guidance only. If you are concerned about your current or future personal financial situation then please contact an adviser from MABS. Advisers are available by phone and email. You can call the MABS National Helpline on 0761 07 2000, Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 (opens in a new tab) or find the contact details for your local office.