Allied Irish Banks, the biggest holder of mortgages in the State, will look to pensions to repay any parked mortgage debt in long-term restructurings for struggling borrowers.
Under new split mortgages being offered to customers who cannot meet current mortgage repayments, the near-nationalised bank will "park" a portion of the mortgage and the customer will not be charged interest or capital on this amount.
AIB, including subsidiary EBS, will review the customer's financial situation every two years to see whether they can repay more off their mortgage, allowing it to reduce the parked amount.
If there is still an amount owing on the "parked" sum by the time the customer retires, the bank may insist on the borrower using part of their pension to clear some or all the outstanding amount.
The bank could also look for the borrower to trade down at retirement to a smaller property and use any proceeds remaining from the sale of the house after the purchase of the new home to repay the debt in full.
"The aim is that we can keep customers in their homes or in homes suitable to their requirements, and that the solution does not lead to a re-default – that is the panacea," said AIB head of mortgages Jim O'Keeffe.
The bank expects about one-fifth of the 34,000 borrowers being shown short-term forbearance at the end of June 2012 to move to long-term fixes as they are rolled out over the next six to nine months, having been piloted during the summer.
The banks will consider split mortgages where customers have higher overheads for a period of time, such as fees for sending children to university, or reduced income where one member of a couple has lost their job but there is a likelihood they will find work in a few years.
In assessing whether a borrower is eligible for a split mortgage, the banks will consider the whole-of-life earnings potential for mortgage-holders to see what they are likely to be able to afford. AIB had €35 billion of owner-occupier mortgages and €10 billion of buy-to-let mortgages on its books at the end of June.
Short-term forbearance was being shown on almost 24,000 owner-occupier mortgages with debt of €3.8 billion, most of which had been moved to interest-only payments. There were a further 10,000 buy-to-let mortgages with €2.5 billion of debt on short-term forbearance, mostly interest-only.
Permanent TSB, the State's biggest mortgage lender during the property boom, says it will allow struggling mortgage-holders to park up to 50 per cent of their mortgage, up to a maximum of €500,000, for a period of time.
Where AIB is not planning to charge interest on the parked debt, Permanent TSB plans to charge a nominal amount of interest, possibly about 1 per cent, subject to the approval of the Central Bank.
Bank of Ireland will allow customers to park up to 60 per cent of their debt in a split mortgage but it plans to charge interest on this amount, in line with the terms of the original loan deal.
The banks will also allow borrowers to increase the term of their mortgages out to when borrowers reach a maximum of 70 years of age.
The Central Bank's banking regulator, Fiona Muldoon, last week criticised the banks in a speech to the Irish Banking Federation for their slow progress in addressing the growing mortgage crisis.
The federation responded by saying banks had been bolstering their collections and arrears support units, had agreed 85,000 short-term forbearance measures for borrowers and were following Central Bank timelines.
