Last week, details of AIB groups new split mortgage emerged. This new product is available to all Customers who have their family home mortgage with AIB/EBS or Haven. In a time of many different groups preaching aspirational solutions without precedent, evidence, track record or a guarantee of success; Split Mortgages irrespective of one liking them, are a solution for people in mortgage difficulties.
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
