Court ruling calls into question future of €1.5bn of warehoused mortgage debt

Michael McGrath

A recent ruling of the High Court has raised serious questions about the future of up to €1.5bn of warehoused mortgage debt under the split mortgage ‘solution’ for those struggling with mortgage arrears, according to Fianna Fáil Spokesperson on Finance Michael McGrath. 

In the case before the High Court recently involving KBC Bank and a couple, Justice Marie Baker described KBC’s proposal to warehouse a substantial portion of the mortgage as ‘kicking the can down the road’. Instead, the Court ruled that the mortgage principal be written down immediately to a sustainable amount for the couple as part of a Personal Insolvency Arrangement. 

Deputy McGrath commented, “This judgment potentially has very significant implications for the use of split mortgage method of restructuring a mortgage in arrears. Under the most recent Central Bank mortgage arrears report, the split mortgage option has been used in 27,079 family home mortgages and 2,037 buy-to-let mortgages with a combined mortgage debt of just over €3bn.

“Minister Noonan has now confirmed to me that something below half of that €3bn has been warehoused, meaning that up to €1.5bn of mortgage debt has been parked to some future date. This equates to an average of up to €50,000 of parked mortgage debt in each case. I know of several cases where the warehoused mortgage amount is over double that.

“The Court ruling is essentially asking the valid question as to whether it is better to agree a restructuring that makes a mortgage sustainable today rather than putting aside a chunk of the mortgage for repayment in the future.

“The 29,000 mortgage holders who have signed up to a split mortgage option are facing a substantial bullet payment at some point in the future. Many of them have no idea how they will make this bullet payment in ten or fifteen years time and face the prospect of selling their home at that stage.

“In light of the High Court ruling, we need an urgent statement from the Central Bank and the Minister for Finance as to whether the banks should continue to be encouraged to use this method of restructuring a distressed mortgage.

“In addition, the 29,000 mortgage holders who have already signed up to the split mortgage model should be given some guidance as to how the ‘bullet payment’ problem they face down the line will be resolved,” concluded McGrath.

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