Insolvency service site visits double as rate increases bite

The Insolvency Services of Ireland (ISI) has seen visitors to its debtor-focused website double in the first three months of 2023, with industry sources linking much of the spike to borrowers whose loans were sold to overseas investment funds in the wake of the financial crisis and are now facing above-the-odds interest rates.

The number of visitors to the ISI’s site rose by 101 per cent on the year to 31,500 in the first quarter, a spokeswoman for the service said.

“It cannot be presumed that visits will convert to arrangements, but clearly many more people are examining their options and checking whether a personal insolvency arrangement might be the answer,” she said.

Variable rates

The focus on rates on loans owned by investment funds — often referred to as vulture funds — has sharpened in recent times as it has emerged that some variable rates charged by servicers of such loans are now approaching 8 per cent. Many underlying borrowers are unable to refinance at lower rates with mainstream lenders because they are considered higher-risk borrowers.

A recent Tullamore Circuit Court ruling that Pepper Finance, one of the leading service providers to the investment funds, must give a discounted 2.5 per cent rate for the next 25 years to a couple as part of a personal insolvency arrangement (PIA) has been pitched by some debt campaigners as a landmark decision that provides a roadmap for other distressed borrowers.

However, a precedent for imposing a low fixed rate was actually set in a High Court ruling in October 2017, when Ms Justice Marie Baker approved a PIA involving a 3.65 per cent fixed rate being granted to an insolvent borrower with a loan out from Shoreline Residential.

Pepper said on Friday it will not be appealing the Tullamore ruling, citing “a number of different factors relating to the unique nature of the case and in particular the individual and personal circumstances of the borrower”.

“We know that this is a very difficult time for many people. We will always work with customers and their PIPs [personal insolvency practitioners] who come to us with personal insolvency applications, and our staff who deal with PIAs are trained to treat each case on its own merits,” said Cormac Ryan, chief executive of Pepper in Ireland, which services about 100,000 residential mortgages in the State.

“Declaring personal insolvency is a serious step for a person to take and can only be done once in your lifetime and we would encourage customers considering this option to take professional advice. Pepper worked on over 200 PIAs in 2022 with the majority being completed and approved without any requirement for court involvement.”

Inquiries escalate

Mr Ryan added: “While Pepper is not a mortgage lender and, therefore, we cannot offer fixed-rate mortgage products to customers, we have many other proven solutions to help customers with affordability issues.”

Mitchell O’Brien, co-founder of insolvency practice IRS Ireland, told The Irish Times that his firm has seen its average weekly personal insolvency inquiries jump fourfold so far this year to 40 from the weekly average for the whole of 2022.

He estimates that 75 per cent of the enquiries are coming from borrowers that took out mortgages during the boom and whose mortgages are now in the hands of investment funds.

“Of the 100,000 or so informal ARA [alternative repayment arrangement] deals stuck between distressed borrowers and banks between 2013 and 2020, about a third of those are now at risk of being compromised as people are dealing increasing interest rates at the same time as higher living costs,” he said. “These loans are mainly with investment funds now.”