Bank to write off debts of over 1,000 landlords under deal
More than 1,000 buy-to-let investors who are in arrears have responded to an offer by Permanent TSB to write off debts if they hand over their properties to the bank.
The take-up of the offer is understood to have surprised bank executives as they battle to lower their non-performing loans numbers.
Under the scheme, landlords who are in default on their buy-to-let mortgage have to agree to hand back the property to the bank.
In return, the residual debt owned on the investor mortgage is written off. The properties will then be sold on by the bank with the tenants in place. This is unusual as those selling investment properties often want vacant possession.
The scheme was announced by Permanent TSB last September with the expectation that just a few hundred under-pressure landlords would take it up. But more than 1,000 of them have indicated a willingness to avail of the offer.
The move is thought to be particularly attractive for small investors and so-called accidental landlords, many of whom are struggling to meet repayments. The offer only applies to those the bank believes genuinely can’t repay what they owe.
Permanent TSB’s announcement of the scheme represented a major shift in the approach by the bank to mortgage holders who are in arrears.
It is thought it could eventually lead to the bank making similar offers to residential mortgage holders who are in debt distress. Financial experts said other banks are likely to follow Permanent TSB’s lead.
It is the first mainstream bank to offer to write off bad debts on a formal basis. The amount of money to be written off will depend on the sales prices achieved for the investment properties that are part of the scheme.
Amounts written off will be the difference between what the bank is owned by the landlord and the sale price. Selling up is often not an option for financially stricken investors, as the arrears can be so large that there will still be a shortfall on the mortgage debt after the sale.
This means the owners are in negative equity, where the property is worth less than the mortgage taken out on it. Permanent TSB is under pressure from the Central Bank and the European Central Bank to deal with its bad debts, which represent 28pc of its loan book.
The bank, which is 75pc owned by the State, still intends to sell a portfolio of soured debt to reduce non-performing loans in the coming days. But PTSB has come around to the view that it is a good idea to incentivise buy-to-let investors who are in long-term arrears to sell up.
Difficulties getting courts to grant repossessions are also playing a part in its thinking.
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