This new split product addresses a number of negatives that currently exist with split mortgage products offered by lenders. Not all lenders offer a split mortgage product.

The mechanics of any split mortgage will depend entirely on individual circumstances and affordability.

For example, Mary and Tom have a mortgage of €300,000. The property, on the basis of a valuation by a bank appointed valuer, is worth €200,000. In this circumstance and based on affordability of at least 80% of the open market value, the new split loan may work as follows:

Tranche A: would be €160,000 (80% of Open market value – minimum criteria required to qualify for a split) – however tranche A will always be based on what you can afford above 80% of open market value.
This leaves €140,000 remaining:
An immediate write off of €40,000 occurs-
Tranche B would then be €100,000 interest free.

If after 5 years all monthly payments are made relating to Tranche A the following will occur:
5% of Tranche B will be written off reducing it from €100,000 to €95,000.
If after 10 years all monthly payments are made relating to Tranche A the following will occur:
A further 5 % will be written off Tranche B which will reduce this sum from €95,000 to €90,250.

Furthermore, if a lump sum is received during the first 10 years and is applied by Mary and Tom to tranche B at their discretion, a further write off may occur.

There is an incentive outlined below to make it attractive to use any lump sum to get a further write off, but this is Mary and Toms choice. Unlike existing split products, the new insolvency arrangements and bankruptcy there is no review of your personal financial circumstances, you are not required to move any of tranche b into tranche a. This is a fairer and more secure aspect of this new split. In addition there is no requirement to surrender your tracker or pay any fees to arrange this split.

In addition, the old split product and splits by other lenders, require any improvement in one’s financial circumstances to be applied towards reducing tranche B by moving an amount of tranche b into tranche a thus increasing monthly repayments. This does not happen with this new split product.
However, if Mary and Tom get a pension lump sum at retirement, they must use this towards paying down tranche B. This only applies to pension lump sums and doesn’t apply to any other lump sums a person may receive e.g. inheritance, bonus payments, gifts, lotto win etc. On this matter it is always advisable to seek professional pension advice.

Any lump sum greater than €1,000 paid in years 0-5 will attract an additional 30% write down above the amount paid. Multiple lump sums can be paid and different intervals. For example if Mary and Tom were to pay €7,000 ,tranche B is reduced by €10,000.

Any lump sum greater than €1,000 paid in years 5-10 will attract an additional 20% write down above the amount paid. Multiple lump sums can be paid and different intervals. For example is Mary and Tom pay €8,000,tranche B is reduced by €10,000.

If a lump sum is received after 10 years no additional write off is given.

On repayment of tranche A, tenure in the property is guaranteed irrespective of the amount of Tranche B remaining. However, based on banking lending criteria at that time ,if there is an ability to make payments in respect of Tranche B, affordable repayments against tranche B will be agreed. If there is no affordability to make payments nothing will be paid and tranche b will eventually be paid from your estate. As mentioned no interest accrues on Tranche B.

This again is a significant improvement on existing split products and allows certainty of payments and certainty around the future. Any increase in pay is kept by Mary and Tom to spend as they wish. This will allow them get on with life in the knowledge that any improvement in their earning capacity through pay increase, promotion, bonus, additional job, businesses developments without the bank watching over their shoulder. This is good for Mary and Tom and this good for the economy.

Any client of The Irish Mortgage Holders Organisation for whom we have previously negotiated a split with AIB/EBS/Haven will be offered this new product.

I, like everyone else, would like a blanket write down on family home mortgage debt. Irrespective of ones view on the split ,to hold out for a magic write off ,yet to happen might be a dream and will disadvantage the borrower as the rules around engaging with lenders has changed requiring banks to not just threaten repossession but to repossess.

David Hall
Director of the Irish Mortgage Holders Organisation.
www.mortgageholders.ie

The below example is for illustration purposes. The mechanics of any split mortgage will depend entirely on individual circumstances and affordability

If you have a higher affordability then your Tranche A will be greater than the €160,000 in this example and your Tranche B will be lower.

Mary and Tom have a mortgage of €300,000. The property, on the basis of a valuation of a bank appointed valuer, is worth €200,00. In this circumstance and based on affordability of at least 80% of the open market value,a split loan may work as follows:

Tranche A: €160,000 (80% of OMV – minimum criteria required to apply for a split) – what is the minimum affordable for the borrower to pay
Tranche B: €100,000
Write Off: immediate €40,000 off tranche B

In after 5 years all monthly payments are made relating to Tranche A the following will occur:
5% of Tranche B will be written off reducing it from €100,000 to €95,000.

In after 10 years all monthly payments are made relating to Tranche A the following will occur:
a further 5 % write off of Tranche B which will reduce this sum from €95,000 to €90,250.

Furthermore, if a lump sum is received during the next 10 years and is applied by Mary and Tom to tranche B in full settlement of tranche B, a further write off may occur.

The below example assumes, as above, that Tranche B is €100,000. A lump sum payment to the account needs to be sufficient, taking into account AIB’s write off outlined below, to clear Tranche B in full. Otherwise any lump sum payment reduces the balance by the amount paid in only.

If a lump sum is received in years 0-5 this is how it will be dealt with: €70,000 paid to the bank off tranche B, this will result in tranche B being reduced by the full amount of €100,000. This is write off of €30,000.
If a lump sum is received in years 5-10, €80,000 is paid to the bank off tranche B this will result in tranche b being reduced by €100,000. This is a write off of €20,000.
If lump sum is received after 10 years no additional write off is given.

On the expiry of the mortgage security of tenure in the property is provided irrespective of the amount of Tranche B remaining. However if ability to make payments in respect of Tranche B is available, given normal lending criteria (and not ISI guideline expenditure criteria) a payment for life will be arranged.

Any client of The Irish Mortgage Holders Organisation who has already been offered a split will be offer this new product.

Any AIB customer already offered a split will also be offered this new product. I suggest having some patience as this might take some time to get around to.

For more information or to contact the Irish Mortgage Holders Organisation at http://www.mortgageholders.ie

Mortgage Holders initiative by IMHO and AIB Group has proved to be a success

·123 long term sustainable solutions agreed

The ground-breaking initiative between the Irish Mortgage Holders Organisation (IMHO) and AIB Group designed to help distressed mortgage holders has resulted in:

· 1011 mortgage holders received information and activation packs containing an introductory letter explaining the core procedures for dealing with arrears, a plan of action for the borrower, a standard financial statement (SFS), a mortgage resolution guide, a link to an online video on how to complete a financial statement, an authorisation letter for IMHO to act on the borrower’s behalf, a pre-paid self-addressed envelope for return communications, and a check list

· Of these, 441 packs have been received back from the borrowers. We are following up with a number of these that are incomplete.

· Follow ups on SFS and related documentation resulted in 263 proposals being sent to the bank to-date. The remainder are being assessed by IMHO

· Of these proposals, 123 long-term sustainable solutions have been fully agreed to-date, while others are at various stages of the resolution process

· Additionally, 12 customers who had already been offered a mortgage solution by AIB prior to the AIB/IMHO initiative, approached IMHO for advice on the offers. Following a review these long term sustainable offers were accepted by the customer.

“Given that the pilot scheme has been in operation for just 55 working days since the launch, this is a very significant result and confirms our contention that this free and independent service would be successful,” said David Hall, Director of IMHO. “We are very pleased that the scheme has worked so well and believe that this scheme is a template for a trusted third party to act on borrowers behalf to engage with banks to achieve long-term sustainable solutions for their mortgage challenges.”

“AIB Group has acted in good faith and worked assiduously with us to reach those sustainable solutions that are so necessary,” said Mr. Hall.

According to Constantin Gurdgiev, Director of IMHO, “The latest data from the IMHO-AIB pilot programme is the first, independently verifiable data on the importance and the efficacy of independent professional supports to the distressed borrowers in Ireland. This data confirms that the pilot scheme offers significant help to distressed borrowers, increases their engagement with the lenders and delivers meaningful impact in terms of arrears resolution deals achieved. It also offers insights for Irish policymakers and regulators into how the process of engaging with distressed borrowers can be improved”.

Head of the Financial Solutions Group at AIB, Brendan O’Connor said: “The pilot programme with IMHO is meeting the expectations we had for this initiative when launched. The interaction with IMHO and their staff has proved to be professional and constructive with a focus on achieving sustainable and practical resolutions for those AIB Group customers who have chosen IMHO to act in an advisory capacity for them in their negotiations with the bank. This initiative is another way for customers to engage with the bank and the pilot has demonstrated the value for some consumers of having access to a trusted advisor who can provide them with practical and objective advice in their pursuit of a resolution to their mortgage difficulties.”

Lessons learned from the process according to the IMHO include:

· The evidence from this initiative should be taken on board in a broader regulatory and legislative review of the mortgages crisis resolution process, where a model of trusted third party representatives be established.

· 42% of clients who have sought assistance from the IMHO required help in completing their standard financial statement. This shows an urgent need to establish a consumer-led working group to review the standard financial statement and to make it more consumer-friendly. In addition, new channels for assisting mortgage holders in completing their SFS are needed. For example, MABS could be used more actively in this task to feed through completed SFS to independent and professionally staffed organisations, such as the IMHO for structuring proposals and negotiating with the banks.

“The IMHO pilot experience shows, how people are deemed to be uncooperative needs urgent review. Many borrowers are currently being categorised as uncooperative, just as the risk of action by the banks against distressed home borrowers is increasing as the banks set about meeting Mortgage Arrears Resolution Targets (MARTs) ,” said Mr Hall.

ENDS

For further information contact:

David Hall – Director, Irish Mortgage Holders Organisation
Constantin Gurdgiev – Director, Irish Mortgage Holders Organisation
Niamh Hennessy – AIB Press Office
Michael Keane – Insight Consultants