Banks To Pay Cost Of Advice For Distressed Mortgage Holders
The recently announced Mortgage Arrears Resolution Process provides a framework for banks and borrowers in arrears to enter into a "long term forbearance" arrangement. This will involve the borrower being offered a scheme that is permanent and affordable in the long term. "Long term forbearance" options will include;
1) Split Mortgages - this involves splitting a mortgage into part Cap & Int and part interest in order to reduce monthly commitment. There may be a possibility of freezing part of the debt for a period time.
2) Term Extensions - this involves extending the term of the loan to reduce the monthly cost of the mortgage. The key factors will be the borrower's ability to repay and length of term versus borrowers age profile.
3) Long Term Interest only - this option may be used where a borrowers income and/or property value has a reasonable prospect of increasing.
4) Mortgage to rent - this scheme would allow the bank to take ownership of the property and the borrower would become a long term tenant. The key issue would be agreeing a long term sustainable rent.
5) Trade Down Forbearance - this tool allows a borrower to sell a property and move to a cheaper property resulting in reduced repayments. The negative equity from first property would be carried fwd. Initial indications from banking sources reveal that the LTV (inc. negative equity portion of loan) on the 2nd property cannot exceed 175% of the 2nd property's value.
6) Voluntary Sale - Under this scheme the property would be sold by an approved agent of bank.