Finding some solace in uncertain times: Banks announce measures for impact of Covid- 19

A Mortgage Payment Holiday (Moratorium or Interest Only) ("MPH") has been offered by the five main banks in Ireland (the "Banks") to borrowers who are affected by the Covid-19 outbreak ("C19"). The C19 alleviating measures also include a deferment of legal proceedings for customers affected by the current crisis.
 
The Banking & Payments Federation of Ireland ("BPFI") has also confirmed that non-bank lenders and firms that service problem loans will follow suit with the above measures and are open to discuss solutions with their customers in order to help them overcome any financial difficulties caused by C19. BPFI stated that non-bank lenders will follow the guidance offered by the Banks on a number of issues to include customer documentation and process, the operation of the Central Credit Register and the possible impact of securitisation deals.
 
These MPH measures are targeted to support those who have either lost employment or are finding themselves with their income reduced. Usually Banks assess the eligibility of customers based on their financial circumstances and the particular mortgage contract they have entered into. Following this analysis and depending on each bank, borrowers would have been offered between 3 to 6 months MPH.
 
Notwithstanding this, the Banks have now agreed to offer the following MPH measures to customers affected by C19:

• where overpayments have been made in the past these can be used to cover the MPH;
• payment of interest only for a period of maximum 12 months;
• tailored payments, to be agreed with the bank, depending on the financial situation of the borrower;
• full mortgage payment deferral between 3 to 6 months depending on the bank.

While borrowers are not making mortgage payments, they will still be liable for the same capital amount and interest will continue to accrue on this.
 
The good news is that lenders have offered this temporary solution without borrowers' credit score being affected and it will not affect their ability to get credit in the future and it will not affect their ability to get credit in the future.
 
Typically, lenders request payments for at least two years or require the loan-to-value of a mortgage to be lower than 80% before applying such reliefs however in the current climate it is believed that these conditions will be lifted for those affected by the C19.
 
Buy-to-let landlords whose tenants have been financially affected by C19 will also be able to avail of MPH. In these circumstances, landlords will be expected to pass on this relief to their tenants and they will need to self-certify that their tenant's income has been affected by the outbreak.
 
The positive side of a MPH is that it relieves some pressure on the borrower in order to cover a temporary drop in income due to C19. The downturn of MPH is that this short-term solution, while nevertheless helpful, will only prove workable if borrowers are in a position to continue to make payments following the end of this deferral period.
 
It is advisable for borrowers to contact their mortgage provider as soon as possible if they believe they are in danger of falling into arrears or are struggling to meet their mortgage repayments. With this in mind, homeowners who are not concerned about their ability to pay should continue with their repayments as normal.

Written by Noreen McGovern, Maria Curran and Teodora Puiu