In view of pushing borrowers to opt for fixed-rate mortgages, Bank of Ireland is maintaining variable rates high. In the same breath, it cannot guarantee to stop seeking the help of vulture funds regarding loans contracted by cash-stricken debtors. The statement was made by Chief Executive Officer Richie Boucher at an Oireachtas committee in November last.
A well-honed strategy
Keeping variable rates high is a well-honed strategy adopted by Bank of Ireland. It is supposed to act like an “incentive” to influence customers to switch to fixed-rate loans, and thus guarantee certainty for Bank of Ireland as well as for the clients who will have a clear picture of their financial scenario on long term. They will also be able to make a better planning.
Richie Boucher added that those thinking that variable rates will not shoot up during a twenty-year mortgage loan period are sorely mistaken. As such, embracing a fixed rate would be more judicious and might even help clients save money in the future. As from 1 September 2016, the standard variable rate was brought down to 4.24%. By holding firm to its high variable rates, it chose the opposite direction from Allied Irish Banks (AIB) which reduced its variables for all customers earlier this year.
Vulture funds to the rescue
Repossession of properties per se is not a profitable process for banks. Apart from being costly, it equally stains their reputation. Thus, having recourse to vulture funds is inevitable, as Bank of Ireland affirmed, to avoid repossessions. Richie Boucher added on a sour note that he can all the same forecast a rise in the number of repossessions in the coming years.
Why Vulture funds are to be distrusted
The name itself says it all. Vulture funds are always hunting down distressed loans that they can acquire at heavy discounts. These private equity firms try to get the most out of these deals. Loopholes in the laws or absent legislations do not compel Vulture funds to abide to the same regulations as main banks.
In general, these funds do not hold any particular interest in the fate of the borrower and the moment they cannot seem to come to an agreement with the latter, they initiate court proceedings or repossession actions. There are about 90,000 Irish loans possessed by investment funds based abroad. The majority of these loans are owned by Vulture funds. One example of a bank having sold its loan book to a Vulture fund is Bank of Scotland. Bank of Ireland as well as Ulster Bank have sold part of their distressed loans to such entities.
Article published in Mortgage loan
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